Chapter 3

Question 1

Which of the following employee benefits is nontaxable
compensation?
❑ a. Company vehicle (personal use)
❑ b. Gifts, prizes and awards
❑ c. Company vehicle (business use)
❑ d. Moving expenses

Answer 1

c. Company vehicle (business use)

Question 2

Which of the following employee benefits is taxable compensation?
❑ a. Workers’ Compensation benefits
❑ b. Health Savings Accounts
❑ c. Sick pay
❑ d. Qualified transportation fringes

Answer 2

c. Sick pay

Question 3

An employee’s most recent pay period began on December 15,
2022, and ended on December 31, 2022. The employee was paid on
January
6, 2023. In what year are his wages earned between December
15, 2022, and December 31, 2022, included in his taxable wages?
_______________

Answer 3

2023

Question 4

An employee was sick the last week in December. His paycheck,
dated December 30, 2022, was held for him until he returned to
work on January 6, 2023. These wages are taxable:
❑ a. In 2022
❑ b. In 2023

Answer 4

a. In 2022

Question 5

Use the Worksheet 3 from Publication 15-T (pre-2020 Form W-4)
and its wage bracket method to calculate FIT withholding on an
employee’s weekly paycheck of $1,415. The employee is single with
one allowance. What is the amount of his FIT withholding?
$_______________

Answer 5

$191 use table

Question 6

Which of the following is true if the employee in Question 5 also
receives a $100 bonus?
❑ a. You must add the $100 to his regular wages before you calculate
FIT withholding.
❑ b. You must use the optional flat rate and withhold 22% from
the bonus.
❑ c. If you use the aggregate method, you will withhold the same
from his bonus as you would if you use the supplemental
method.
❑ d. The aggregate and flat rate methods will produce a different
amount to withhold.

Answer 6

d. The aggregate and flat rate methods will produce a different
amount to withhold.

Using the aggregate method and Worksheet 3, the employee’s
withholding on $1,515 ($1,415 in regular wages plus $100 bonus) is
$214. That is a difference of $23 over the employee’s regular withholding
of $191 see question 5). Using the flat rate, the withholding
is 22%, or $22 on a $100 bonus. So the withholding will be different
depending on which method is used.

Question 7

In what part of a 2022 Form W-4 does an employee claim dependents?
❑ a. Step 3
❑ b. Writing below Step 4(c)
❑ c. Step 2
❑ d. Dependents are not claimed on Form W-4

Answer 7

a. Step 3

Question 8

An employee with a 2022 Form W-4 claims a filing status of single/
married filing separately in Step 1, does not complete Step 2,
claims one dependent not a qualifying child under age 17 in Step 3,
and does not complete Step 4. The employee earns $1,400 biweekly.
Use the percentage method in Worksheet 1A of Publication 15-T to
calculate withholding for federal income tax.
$________________

Answer 8

$88.10 use worksheet 1A

Question 9

All of the following wages are supplemental wages EXCEPT:
❑ a. salary.
❑ b. bonus.
❑ c. commission.
❑ d. fringe benefits.

Answer 9

a. salary.

Question 10

When using the optional flat rate method, which of the following
items is considered when making the calculation?
❑ a. Taxable wages
❑ b. Pay frequency
❑ c. Filing status
❑ d. Number of dependents

Answer 10

a. Taxable wages

When using the optional flat rate, only the taxable wages is used
in the calculation.

Question 11

When paying supplemental wages, when must the aggregate withholding
method be used?
❑ a. When no income tax is withheld from regular wages for the
current or preceding calendar year
❑ b. When the employee claims more than 10 dependents
❑ c. When the employee doesn’t complete a Form W-4
❑ d. When the employee claims head of household

Answer 11

a. When no income tax is withheld from regular wages for the
current or preceding calendar year

Question 12

A firm’s chief executive officer is paid $9,615.38 biweekly. On his
2022 Form W-4, he claims a status of married filing jointly, does
not complete Step 2, in Step 3 claims $4,500.00 in tax credits, and
in Step 4(c) elects to have an additional $250 withheld from his
pay each pay period. Using the percentage method in Worksheet
1A of Publication 15-T, what is his biweekly withholding for federal
income tax?
$________________

Answer 12

$1,671.34 use worksheet 1A

Question 13

When an employee is overpaid and the repayment occurs in the
same year, the repayment requested is the employee’s:
❑ a. net overpayment.
❑ b. gross overpayment.
❑ c. gross overpayment minus social security and Medicare tax.
❑ d. gross overpayment minus federal income tax.

Answer 13

a. net overpayment.

When an employee is overpaid and the repayment occurs in the
same year, the repayment requested is the employee’s net overpayment.

Question 14

What form must a pensioner file to have input into the amount of
federal income tax withheld?
❑ a. W-4
❑ b. W-4P
❑ c. W-4R
❑ d. W-9

Answer 14

b. W-4P

Question 15

When an employee begins to receive social security benefits, the
employer no longer needs to withhold social security and Medicare
taxes.
❑ True
❑ False

Answer 15

False

Question 16

In 2022, an employer must pay social security tax on an employee’s
wages up to:
❑ a. $132,900.00
❑ b. $137,700.00
❑ c. $142,800.00
❑ d. $147,000.00

Answer 16

d. $147,000

Question 17

What is the employer’s social security tax rate in 2022?
❑ a. 1.45%
❑ b. 6.2%
❑ c. 7.65%
❑ d. 12.4%

Answer 17

b. 6.2%

Question 18

A voluntary deduction must be:
❑ a. authorized by the employee.
❑ b. deducted without the employee’s permission.
❑ c. changed to what the employer needs to deduct.

Answer 18

a. authorized by the employee.

Question 19

Required deductions must take precedence over voluntary
deductions.
❑ True
❑ False

Answer 19

True

Involuntary deductions have priority over other deductions.

Question 20

All of the following deductions are involuntary deductions
EXCEPT:
❑ a. wage assignments
❑ b. tax levy
❑ c. child support
❑ d. creditor garnishment

Answer 20

a. wage assignments

Wage assignments are voluntary deductions from the employee’s
pay.

Question 21

What does an employer use to calculate the amount to withhold
for an IRS tax levy?
❑ a. Disposable pay
❑ b. Net pay
❑ c. Take-home pay
❑ d. Taxable wages

Answer 21

c. Take-home pay

The IRS requires the employee’s take-home-pay be used when
calculating the levy deduction.

Question 22

When does an employer stop deducting a federal tax levy from an
employee’s wages?
❑ a. The amount on the levy is reached
❑ b. The IRS issues a Form 668-D
❑ c. The employee asks that the levy deduction be stopped

Answer 22

b. The IRS issues a Form 668-D

IRS interest and penalties continue to accrue on the outstanding
taxes until Form 668-D is issued.

Question 23

What does an employer use to calculate the amount to withhold
for a child support withholding order?
❑ a. Disposable pay
❑ b. Net pay
❑ c. Take-home pay
❑ d. Taxable wages

Answer 23

a. Disposable pay

The employee’s disposable pay (all earnings less deductions
required by law) is used to determine the maximum child support
withholding.

Question 24

An employee earns $1,000.00 weekly. His deductions are $174.00
for federal income tax, $62.00 for social security tax, and $14.50
for Medicare tax. He is not supporting another family and has
never been in arrears in his child support payments. What is the
maximum child support payment that can be withheld from his
wages?
❑ a. $600.00
❑ b. $500.00
❑ c. $449.70
❑ d. $500.18

Answer 24

c. $449.70

If the employee has no second family and is not in arrears, the
maximum deduction is 60% of disposable pay. The employee’s disposable
pay is $749.50 ($1,000 – $174 – $62 – $14.50). Therefore, the
maximum child support payment is $449.70 ($749.50 x .60).

Question 25

The federal minimum wage is used when figuring the amount to
withhold for a creditor garnishment.
❑ True
❑ False

Answer 25

True

Question 26

An employee earns $18.50 per hour and is paid biweekly. He worked two
40-hour shifts of straight time. His deductions include $400.00 for federal
income tax, $100.00 for state income tax, $91.76 for social security tax,
$21.46 for Medicare tax, and $50 for union dues.
9. What is the employee’s disposable pay?
❑ a. $580.00
❑ b. $816.78
❑ c. $866.78
❑ d. $1,480.00

Answer 26

C. $866.78

Disposable pay does not include voluntary deductions.
$18.50/hour x 80 = $1,480.00 biweekly pay

— 400.00 federal income tax
— 100.00 state income tax

— 91.76 social security tax

• 21.46 Medicare tax

$866.78

Question 27

When an employee lives and works in the same state, the employer
withholds income tax for that state.
❑ True
❑ False

Answer 27

True

Question 28

For a payment after the employee’s death in the year of the death,
what taxes, if any, will be withheld?
❑ a. Federal income tax only
❑ b. Social security and Medicare taxes only

❑ c. Federal income and social security and Medicare taxes
❑ d. No taxes will be withheld

Answer 28

b. The Social Security Act requires withholding social security
and Medicare taxes from wages paid in the year of an employee’s
death. These wages are paid to the employee’s estate or beneficiary
and are reported on as social security and Medicare taxable
wages on the deceased employee’s Form W-2.

Question 29

For a payment after the employee’s death in the year after the
death, what taxes, if any, will be withheld?
❑ a. Federal income tax only
❑ b. Social security and Medicare taxes only
❑ c. Federal income and social security and Medicare taxes
❑ d. No taxes will be withheld

Answer 29

d. The Social Security Act requires that social security and Medicare
taxes not be withheld from wages paid in the year after an
employee’s death. These wages are paid to the employee’s estate
or beneficiary and are not reported on Form W-2 but would be
reported in Box 3 of Form 1099-MISC in the name of whomever
received the payment.

Question 30

Involuntary deductions must take precedence over voluntary deductions.

True

False

Answer 30

True

Question 31

An employee earns $18.50 per hour and is paid biweekly. He worked two
40-hour shifts of straight time. His deductions include $400.00 for federal
income tax, $100.00 for state income tax, $91.76 for social security tax,
$21.46 for Medicare tax, and $50 for union dues.

What is the maximum that can be attached from the employee’s paycheck for a creditor garnishment?

$_________

Answer 31

$216.70

The employee’s disposable biweekly earnings are at least $580.00. The maximum garnishment amount for the employee’s disposable biweekly earnings under federal law is 25% of disposable pay ($866.78 X 25% = $216.70).