22 Calculating the Paycheck Practice Questions & Answers

1. 1. An employee's pay statement includes gross wages, a Section 125 health premium, a traditional 401(k) deferral, federal income tax, Social Security and Medicare tax, a child support withholding, and union dues. In what order must the payroll system apply these items?

   • A.Compute all taxes on the gross wages first, then subtract each deduction in the order the employee elected it.
   • B.Subtract the union dues and the child support order first, then the pre-tax items, then the taxes.
   • C.Subtract every deduction, pre-tax and post-tax alike, and then compute the taxes on the remainder.
   • D.Subtract the pre-tax items, compute the taxes, then take the child support order, then the union dues.✓ Answer

   Pre-tax deductions have to come out before withholding is figured, because they change the wage base on which each tax is computed. Taxes are withheld next, and only then do post-tax deductions apply, with involuntary orders such as child support taken ahead of voluntary items such as union dues.

   Source: IRS Publication 15 (Circular E); Internal Revenue Code section 125Report a problem with this question

2. 2. An employee earns $3,000 in gross wages for the period. She contributes $200 to a Section 125 health premium and defers $300 to a traditional 401(k). What are her federal income tax (FIT) taxable wages and her Social Security taxable wages for the period?

   • A.FIT wages of $2,500 and Social Security wages of $2,800✓ Answer
   • B.FIT wages of $2,800 and Social Security wages of $2,800
   • C.FIT wages of $2,500 and Social Security wages of $2,500
   • D.FIT wages of $2,700 and Social Security wages of $2,500

   A Section 125 cafeteria plan premium is exempt from federal income tax and from Social Security and Medicare, so it reduces both bases. A traditional 401(k) elective deferral is exempt from federal income tax only and stays fully subject to FICA, so the two taxable bases differ: $3,000 minus $500 for FIT and $3,000 minus $200 for Social Security.

   Source: Internal Revenue Code sections 125 and 401(k); IRS Publication 15 (Circular E)Report a problem with this question

3. 3. After taxes have been withheld, an employee's remaining pay is not enough to cover both a creditor garnishment and her voluntary credit union savings deduction. What should the employer do?

   • A.Withhold the garnishment in full up to the legal ceiling and reduce or suspend the credit union deduction.✓ Answer
   • B.Prorate the shortfall between the garnishment and the credit union deduction in equal shares.
   • C.Honor the employee's written authorization first, since she signed it before the court order.
   • D.Suspend both deductions until a later pay period brings enough net pay to cover both of them.

   Involuntary deductions imposed by law or court order rank ahead of voluntary post-tax deductions, so when net pay runs short the garnishment is satisfied first up to its statutory ceiling and the voluntary item is reduced or stopped. The date the employee signed a voluntary authorization does not give it priority over a legal order.

   Source: Consumer Credit Protection Act, 15 U.S.C. 1673; 29 CFR Part 870Report a problem with this question

4. 4. For purposes of a creditor garnishment under the Consumer Credit Protection Act, disposable earnings are gross earnings reduced by which items?

   • A.Legally required deductions plus health insurance premiums, union dues and 401(k) deferrals.
   • B.Deductions required by law, such as income taxes and the employee's Social Security and Medicare.✓ Answer
   • C.Every deduction the employer actually withholds, so that disposable earnings equal the employee's net pay.
   • D.Nothing at all; disposable earnings and gross earnings are the same figure under the statute.

   Disposable earnings are defined as what is left after deductions required by law, meaning income taxes, the employee's FICA share and mandatory state deductions. Voluntary items such as insurance premiums, union dues and retirement deferrals do not reduce disposable earnings, which is why disposable earnings sit between gross pay and net pay rather than equalling either one.

   Source: Consumer Credit Protection Act, 15 U.S.C. 1672; DOL Wage and Hour Division Fact Sheet #30Report a problem with this question

5. 5. An employee is paid weekly. Her gross pay is $600, legally required deductions total $120, and she also has $50 in union dues and a $60 health premium. Assume the federal minimum hourly wage is $7.25. What is the maximum an ordinary creditor garnishment may take this week?

   • A.$120.00✓ Answer
   • B.$92.50
   • C.$262.50
   • D.$150.00

   Disposable earnings are $600 minus only the $120 of legally required deductions, or $480; the union dues and health premium are voluntary and do not reduce them. The ceiling is the lesser of 25 percent of disposable earnings ($120) or the amount by which disposable earnings exceed 30 times the minimum wage ($480 minus $217.50, or $262.50), so $120 is the limit.

   Source: Consumer Credit Protection Act, 15 U.S.C. 1673; 29 CFR Part 870Report a problem with this question

6. 6. The 25 percent ceiling that the Consumer Credit Protection Act places on ordinary creditor garnishments does NOT apply to which of the following?

   • A.A second creditor garnishment for a debt the employee has already disputed.
   • B.A federal tax levy, a bankruptcy court order, or an order for child or spousal support.✓ Answer
   • C.A garnishment issued by an out-of-state court against a local employee's wages.
   • D.Any garnishment served on a salaried employee rather than on an hourly employee.

   The Title III percentage limit governs ordinary creditor garnishments only. Federal and state tax levies, bankruptcy court orders and support orders are carved out: levies use an exempt-amount computation, bankruptcy orders take absolute priority, and support orders have their own 50 to 65 percent ceilings.

   Source: Consumer Credit Protection Act, 15 U.S.C. 1673; 29 CFR Part 870Report a problem with this question

7. 7. An employee subject to an income withholding order for child support supports a second family and is more than 12 weeks in arrears. What is the maximum percentage of his disposable earnings that may be withheld?

   • A.50 percent
   • B.65 percent
   • C.55 percent✓ Answer
   • D.60 percent

   The Consumer Credit Protection Act caps support withholding at 50 percent of disposable earnings when the employee supports another spouse or child, and 60 percent when he does not. Each figure rises by five percentage points once arrears exceed 12 weeks, so an employee supporting a second family and more than 12 weeks behind is capped at 55 percent.

   Source: Consumer Credit Protection Act, 15 U.S.C. 1673Report a problem with this question

8. 8. A single employee is subject to a bankruptcy court order, a child support order, a federal tax levy served after the support order, a defaulted student loan garnishment and an ordinary creditor garnishment. Which sequence generally governs?

   • A.Creditor garnishment, student loan, child support, bankruptcy, federal tax levy.
   • B.Federal tax levy, bankruptcy, child support, ordinary creditor garnishment, student loan.
   • C.Child support, creditor garnishment, bankruptcy, federal tax levy, student loan.
   • D.Bankruptcy, child support, federal tax levy, student loan, creditor garnishment.✓ Answer

   A bankruptcy court order takes absolute priority because the trustee's order supersedes other claims on the wages. Child support comes next, followed by a federal tax levy, then federal administrative garnishment for a defaulted student loan, and an ordinary creditor garnishment last.

   Source: Consumer Credit Protection Act, 15 U.S.C. 1673; U.S. Bankruptcy Code, 11 U.S.C. 362Report a problem with this question

9. 9. A federal tax levy was served on the employer before the child support order was issued. How does that affect priority?

   • A.The child support order still comes first, because support always outranks a levy.
   • B.The federal tax levy takes precedence over the child support order.✓ Answer
   • C.The two orders share the available disposable earnings in equal amounts.
   • D.The employer must return the levy to the IRS and honor only the support order.

   Child support normally has first claim against every other withholding order, but there is one recognized exception: a federal tax levy that was already served on the employer before the support order was issued keeps its earlier position and is satisfied first.

   Source: Internal Revenue Code section 6334; IRS Form 668-W instructionsReport a problem with this question

10. 10. Two child support withholding orders for the same employee together exceed the CCPA ceiling. What must the employer do?

    • A.Withhold the full amount of both orders, since support orders have no ceiling.
    • B.Withhold only up to the ceiling and allocate the amount among the orders as state law directs.✓ Answer
    • C.Return both orders to the issuing agencies and await a single consolidated order.
    • D.Honor the order received first in full and withhold nothing for the second order.

    The employer may never withhold more than the CCPA ceiling for support, so it withholds up to that limit and then divides what is available among the competing orders. The allocation method, commonly a pro rata split with current support satisfied first, is set by the law of the state issuing the orders and must be consulted.

    Source: Consumer Credit Protection Act, 15 U.S.C. 1673; federal Income Withholding for Support (IWO) instructionsReport a problem with this question

11. 11. How does an employer determine how much to withhold from an employee's wages under a federal tax levy?

    • A.It withholds 15 percent of the employee's gross pay each period until the balance is paid.
    • B.It calculates an amount exempt from levy and sends everything above that to the IRS.✓ Answer
    • C.It withholds whatever amount the employee authorizes in writing after receiving notice.
    • D.It applies 25 percent of the employee's disposable earnings, the same as a creditor garnishment.

    A federal tax levy works in reverse of a garnishment. Instead of computing an amount to take, the employer looks up the amount exempt from levy based on the employee's filing status, dependents and pay frequency, and remits all pay above that exempt figure until the IRS issues a release.

    Source: Internal Revenue Code section 6334; IRS Publication 1494Report a problem with this question

12. 12. An employee does not return the Statement of Dependents and Filing Status within three days of receiving it. How is the exempt amount then computed?

    • A.As head of household with one dependent.
    • B.As single with zero dependents.
    • C.As married filing separately with zero dependents.✓ Answer
    • D.As married filing jointly claiming zero dependents.

    If the statement is not returned within three days, the employer must use the lowest table figure, which is married filing separately with zero dependents. The employee can submit the statement later, and the exempt amount is then adjusted going forward rather than retroactively.

    Source: IRS Publication 1494; IRS Form 668-W instructionsReport a problem with this question

13. 13. A defaulted federal student loan is being collected by administrative wage garnishment. What is the maximum share of the employee's disposable pay that may be taken?

    • A.50 percent
    • B.15 percent✓ Answer
    • C.10 percent
    • D.25 percent

    Administrative wage garnishment for a defaulted federal student loan is limited to 15 percent of disposable pay. The employee also keeps the protection of 30 times the federal minimum wage, and when combined with other garnishments the total remains subject to the 25 percent aggregate limit.

    Source: Higher Education Act administrative wage garnishment, 20 U.S.C. 1095a; 34 CFR Part 34Report a problem with this question

14. 14. An employee's wages have been garnished three separate times for the same single debt. What does Title III of the Consumer Credit Protection Act say about discharging her?

    • A.The employer may discharge her only after giving her 30 days of written notice to pay the debt.
    • B.The employer may discharge her, because the statute permits discharge after a second garnishment.
    • C.The employer may discharge her, because the protection covers only support orders and tax levies.
    • D.The employer may not discharge her, because all three garnishments arise from one indebtedness.✓ Answer

    Title III forbids discharging an employee whose earnings are garnished for any one indebtedness, however many separate garnishment proceedings that single debt generates. The protection does not extend to discharge arising from a second and distinct debt.

    Source: Consumer Credit Protection Act, Title III, 15 U.S.C. 1674Report a problem with this question

15. 15. An employer receives a valid income withholding order for child support. Which statement best describes the employer's duties?

    • A.Wait for the employee's signed written consent before withholding any amount from the paycheck.
    • B.Withhold the amount but hold the funds until the issuing agency confirms the case details.
    • C.Verify the underlying court judgment with outside counsel before withholding any support amount.
    • D.Notify the employee, start withholding by the first pay period after receipt, and remit promptly.✓ Answer

    A support withholding order is a legal directive, so no employee consent is needed and the employer generally must begin withholding no later than the first pay period after receipt, give the employee a copy, and remit within the short statutory deadline. An administrative fee may be added only if state law allows it and only if total withholding stays within the CCPA ceiling.

    Source: Federal Income Withholding for Support (IWO) instructions; Consumer Credit Protection Act, 15 U.S.C. 1673Report a problem with this question

16. 16. An employee gives written notice revoking her authorization for a voluntary charitable contribution deduction. What is the employer's obligation?

    • A.Stop the deduction going forward, because a voluntary authorization is generally revocable.✓ Answer
    • B.Keep taking it until the charity confirms in writing that it releases the pledge.
    • C.Refund every contribution taken during the year and end the deduction immediately.
    • D.Keep taking it until the end of the plan year, since the signed election was irrevocable.

    A voluntary deduction is valid only while a written or electronic employee authorization supports it, and that authorization can normally be withdrawn. The revocation operates prospectively, so amounts already properly withheld under the earlier authorization are not refunded.

    Source: Fair Labor Standards Act, 29 CFR Part 531Report a problem with this question

17. 17. An employer requires employees to buy a company uniform and deducts the cost from wages. Under the FLSA regulations, what limit applies?

    • A.The deduction may not exceed 25 percent of the employee's disposable earnings.
    • B.The deduction is allowed only if the uniform costs less than one day of the employee's pay.
    • C.The deduction is unlimited as long as the employee signed a written authorization.
    • D.The deduction may not bring pay below the minimum wage or cut into overtime pay.✓ Answer

    Wages must be paid free and clear, so a deduction for uniforms, tools of the trade, cash shortages or damaged property cannot reduce pay below the federal minimum wage in any workweek or reduce overtime compensation. A signed authorization does not cure a deduction that breaches that floor.

    Source: Fair Labor Standards Act, 29 CFR Part 531Report a problem with this question

18. 18. A tipped employee works 46 hours in a workweek. Assume the federal minimum wage is $7.25 per hour, the employer pays $2.13 in cash wages and claims the maximum $5.12 tip credit. What is the employee's overtime cash wage rate per hour?

    • A.$7.25
    • B.$3.20
    • C.$5.76✓ Answer
    • D.$10.88

    Overtime for a tipped employee is computed on the full minimum wage, not on the cash wage. One and one-half times $7.25 is $10.875, and subtracting the $5.12 tip credit leaves a cash overtime rate of about $5.76 per hour; multiplying the $2.13 cash wage by 1.5 is the classic error.

    Source: Fair Labor Standards Act section 3(m); 29 CFR Part 531Report a problem with this question

19. 19. In a workweek a tipped employee's cash wage plus tips falls short of the federal minimum wage for the hours worked. What must the employer do?

    • A.Pay the difference so the employee receives at least the full minimum wage.✓ Answer
    • B.Carry the shortfall forward and make it up out of the next week's tips.
    • C.Reduce the employee's scheduled hours until the tips reported cover the credit.
    • D.Nothing, because the tip credit shifts that risk onto the employee.

    The tip credit may be claimed only to the extent tips are actually received, so the employer bears the shortfall. It must add cash wages in that same workweek to bring the employee up to the full minimum wage; shortfalls cannot be carried between workweeks.

    Source: Fair Labor Standards Act section 3(m); 29 CFR Part 531Report a problem with this question

20. 20. A salesperson receives a $2,000 recoverable draw against future commissions in a period in which she earns no commission. How is the draw treated for payroll purposes?

    • A.As taxable wages only in the amount that exceeds the commissions later earned.
    • B.As a nontaxable loan that is reported only when the commissions are earned.
    • C.As taxable wages when paid, recovered from later commission earnings.✓ Answer
    • D.As a reimbursement excluded from wages because no commission was earned.

    A draw against commission is compensation paid for services, so it is wages subject to withholding and employment taxes in the period it is paid. When commissions are later earned, the recoverable draw is offset against them rather than retroactively reclassified.

    Source: IRS Publication 15 (Circular E)Report a problem with this question

21. 21. An employer overpaid an employee in a prior calendar year, and the employee repays the full gross amount this year. What is the correct payroll treatment?

    • A.The employee repays the gross amount, and the employer corrects the prior year to recover the FICA.✓ Answer
    • B.The employee repays only the net amount, and the employer reduces this year's taxable wages.
    • C.The employer simply reduces the employee's current-year gross wages by the overpaid amount.
    • D.No correction is available once the calendar year has closed, so nothing further is done.

    Repayment within the same calendar year lets the employee return only the net, because the employer can back out the withholding before year-end reporting. Once the year has closed, the employee must repay the gross; the employer may correct the prior year's Social Security and Medicare wages and recover those taxes, while the federal income tax withheld is not adjusted and is handled on the employee's own return.

    Source: IRS Publication 15 (Circular E); IRS Form 941-X instructionsReport a problem with this question

22. 22. An employer wants an employee to receive a net bonus of $1,000. Assume the applicable rates are 22 percent for federal supplemental withholding, 6.2 percent Social Security and 1.45 percent Medicare, and that the employee is below both the Social Security wage base and the Additional Medicare Tax threshold. What gross amount must be paid?

    • A.$1,282.05
    • B.$1,421.46✓ Answer
    • C.$1,296.50
    • D.$1,000.00

    A gross-up divides the desired net by one minus the sum of the applicable tax rates, rather than multiplying the net by those rates. Here the rates total 29.65 percent, so $1,000 divided by 0.7035 gives a gross of $1,421.46, and the employee nets exactly $1,000 after withholding.

    Source: IRS Publication 15 (Circular E)Report a problem with this question

Practice questions based on the PayrollOrg Fundamental Payroll Certification content outline and on federal payroll authorities including IRS Publication 15 (Circular E), Publication 15-A, Publication 15-B, the Fair Labor Standards Act, and the Consumer Credit Protection Act. FPC and CPP are marks of PayrollOrg; this site is not affiliated with or endorsed by PayrollOrg. Amounts that are adjusted each year — wage bases, contribution limits, the minimum wage, mileage and per-diem rates — are given inside the question rather than tested from memory, and state-specific rules are out of scope. Confirm the current content outline and the current-year figures from the official sources before testing. About the FPC exam →