Under IRS rules, when an employee has loans provided by the employer in excess of $10,000, the employer must impute interest into the employee’s income if the interest rate the employee pays is less than the applicable federal interest rate. The included income is subject to income, social security, and Medicare taxes but is not subject to income tax withholding.
For more information, refer to Module 4, Lesson 4
An employer provided an employee with a $9,500.00 below-market loan. Although the current IRS rate of interest is 10%, the employee pays only 7%. Calculate the imputed interest income, if any, that must be reported as federal taxable wages on the employee’s Form W-2.
- $0.00 – Correct Answer
- $280.00
- $120.00
- $400.00
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RATIONALE
Under IRS rules, employers must recognize the value of taxable noncash fringe benefits as income at least once a year, no later than December 31 to ensure the taxable value and taxes withheld are reported correctly on Form W-2.
For more information, refer to Module 4, Lesson 1
How frequently MUST an employer recognize the value of noncash fringe benefits as income?
At least once a year, no later than December 31 – Correct Answer
Along with its regular tax deposit
At least quarterly
With every payroll
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RATIONALE
Under IRS rules, payments in an accountable plan for an employee temporarily traveling away from home overnight are not taxable. Temporary living quarters after a move are moving expenses and are included in the employee’s income.
For more information, refer to Module 4, Lesson 3
Employer-paid meals or lodging are taxable when:
substantiated meals while traveling away from home on business are reimbursed.
staying in the company’s guest quarters for three months after transferring while a new house is under construction. –correct answer
employees are required to stay in the company’s on-site quarters when working in the field locations.
submitting a documented hotel bill when away from home for a company-sponsored conference.
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RATIONALE
The IRC generally excludes the value of tangible personal property provided in a length of service or safety award program up to $400. Length of service or safety awards in excess of $400 will have the excess amount included in income. All other awards provided to employees are included in the employee’s income reported on Form W-2.
For more information, refer to Module 4, Lesson 3
All of the following benefits are taxable EXCEPT:
a $1,000.00 award for prospecting new customers.
a gold watch costing $400.00 awarded for 25 years with the company. – correct answer
a $500.00 savings bond in a company-sponsored cost cutting contest.
a $30.00 gift card provided to all employees.
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A federal tax levy continues until the IRS issues Form 668-D, Release of Levy. Under the CCPA, an employer must withhold the lesser of the amount on the order or the allowed percentage (50%, 55%, 60%, or 65% depending on the employee’s family status and arrearages) or a lower percentage required by state law of the employee’s disposable earnings to satisfy the child support order. Under the CCPA, disposable earnings are determined by subtracting all deductions required by law from an employee’s gross earnings. Deductions required by law include federal income, state income, local income, social security and Medicare taxes.
For more information, refer to Module 3, Lesson 1
A true statement regarding an involuntary wage attachment is:
voluntary deductions are used to calculate the employee’s disposable pay.
federal tax levies continue until the obligation is released. —Correct Answer
the priority on wage attachments is (1) child support, (2) garnishments, and (3) levies.
state law can require a larger deduction for child support than the federal law.
RATIONALE
Federal tax levies continue until the deduction is released by the IRS using Form 668-D, Release of Levy. The CCPA limits creditor garnishment deductions to the lesser of 25% of disposable pay or the amount that exceeds 30 times the weekly minimum wage. Under the CCPA, disposable pay is the employee’s gross earnings less deductions required by law.
For more information, refer to Module 3, Lesson 1
Which of the following statements is true regarding involuntary wage attachments?
Federal tax levies are only 20% of disposable pay.
Federal tax levies continue until the deduction is released by the IRS. – Correct Answer
Voluntary deductions are used to calculate an employee’s disposable pay.
The priority on wage attachments is (1) child support, (2) creditor garnishment, and (3) federal tax levy.
Employees with negative net pay must have their deductions reduced before the payroll processing is finalized to no more than the amount of their gross pay, resulting in net pay of $0.00. The order in which deductions must be withheld is federal taxes, state/local taxes, involuntary deductions (also known as withholding orders), and voluntary deductions.
For more information, refer to Module 3, Lesson 2
If an employee’s net pay results in negative net pay, which of the following deductions can be reduced or eliminated to bring the check to $0?
Voluntary deductions – Correct Answers
Federal taxes
Involuntary deductions
State taxes
The federal law providing standards that states must meet or exceed in order to qualify for federal funding of state child support enforcement programs is Part D of Title IV of the Social Security Act.
For more information, refer to Module 3, Lesson 1
What is the federal law requiring states to meet certain standards to qualify for federal funding of state child support enforcement programs?
Child Support Recovery Act
Consumer Credit Protection Act
Social Security Act– Correct Answers
Uniform Interstate Family Support Act
Under the CCPA, an employer must withhold the lesser of the amount on the child support order (IWO) or the allowed percentage of the employee’s disposable earnings to satisfy the child support order.
For more information, refer to Module 3, Lesson 1
What action must an employer take when receiving a child support order?
Discipline the employee because of the deduction.
Take no deduction from the employee.
Make the deduction as required. – Correct Answers
Terminate the employee because of the deduction.
The National Medical Support Notice consists of two parts, one for the employer and one for the health plan administrator.
For more information, refer to Module 3, Lesson 1
The National Medical Support Notice consists of two parts that are given to the:
employee and the payroll manager.
employer and the health plan administrator. – Correct Answers
health plan administrator only.
employee and the health plan administrator.
The correct answer is: $863.42
Under the CCPA, disposable earnings are determined by subtracting all deductions required by law from an employee’s gross earnings. Deductions required by law include federal, state, and local income taxes, and social security and Medicare taxes.
For more information, refer to Module 3, Lesson 1
An employee earns $888.00 semimonthly plus a $100.00 production bonus. Deductions include $49.00 for federal income tax, $75.58 for social security and Medicare taxes, $125.00 for a court-ordered child support, and $25.00 for union dues. Calculate the employee’s disposable pay for a creditor garnishment.
