P2-U05 · PART 2 · SOURCE CYCLE 2026-2027
Employee Compensation and Fringe Benefits
How to complete this unit
This unit uses 22 source-gated recall cards and 22 admissible practice questions. Complete the sequence in order; the unreleased wiki prose remains outside the learner path.
- 1 · LearnBuild the rule
Answer each recall prompt before opening it. Then learn the exact rule, test the controlling facts through four quick challenges, explore common questions, and finish with one own-words teach-back.
- 2 · ApplyUse it in context
Complete at least 20 mapped questions over two sessions. Review the explanation even when the answer is correct.
- 3 · ProveTest readiness
Use the Part 2 mock under time pressure. Return here for every flagged or missed concept before the next attempt.
Verified recall questions
Only cards whose complete question and answer were checked against exact primary-authority evidence appear here. Stable unit ownership gathers this lesson across 1 textbook collection.
Q1.What three common-law categories are considered when deciding whether a worker is an employee or independent contractor?
behavioral control financial control type of relationship
Q2.When Alder pays an employee wages over $200,000 in the calendar year, what additional withholding generally begins?
0.9% Additional Medicare Tax
Q3.Alder averaged 52 full-time employees including full-time equivalents in the prior year. How is it generally classified for employer shared-responsibility purposes?
An applicable large employer
Q4.For FUTA purposes, what federal wage base generally applies to each Alder employee?
The first $7,000 of wages
Q5.Alder gives an employee a $10 gift card. Can it be excluded as a de minimis fringe benefit?
No, gift cards are cash equivalents and are not de minimis
Q6.Which information return reports employee wages, tips, other compensation, and withheld payroll taxes?
Form W-2
Q7.How does the IRS define an "applicable large employer," for the purposes of the employer shared responsibility provisions?
An applicable large employer is an employer with an average of at least 50 full-time employees
Q8.Middle-Kauffman Company gave all its employees holiday gifts in December. Which of the following gifts would be taxable to the employee as compensation?
A gift card valued at $25.
Q9.Budget Systems, Inc. is struggling to pay its bills. The company’s controller, Jessa, decides to pay off creditors by using amounts withheld from the employees’ paychecks for income taxes and Social Security taxes, rather than depositing them as required with the federal government. Jessa is not an owner or shareholder of the company, but she is a company officer. Jessa may be subject to which of the following penalties?
Trust fund recovery penalty
Q10.What must a business do if it pays a non-corporate independent contractor over $600 during the year?
File Form 1099-NEC to report payments to the contractor.
Q11.Debbie works full-time as an ambulance technician and receives fringe benefits from her employer. The fringe benefit that must be included in her wages and reported on Form W-2 is:
Employer-paid premiums on group-term life insurance coverage in excess of $50,000.
Q12.Which of the following benefits must be included in an employee's income?
A holiday gift of a $25 gas card.
Q13.Kirby Equipment, Inc. is an engine repair company located in Texas. Kirby Equipment has 200 full-time employees and offers a cafeteria plan. John Kirby is a 100% shareholder and the president of the company. John Kirby earns a salary of $290,000 a year and is automatically classified as a highly compensated employee as well as a key employee. Which of John Kirby's following relatives would not be classified automatically as key employees?
Quincy, who is John Kirby's cousin. He earns $40,000 working full-time for the company.
Q14.All of the following are excludable from an employee's wages and deductible by the employer except:
Employer-provided vehicles that employees use for commuting purposes.
Q15.Renee is a full-time employee of Ingenious Engineering, Inc., which offers educational reimbursement to employees through an education assistance program (EAP). In 2025, she takes four graduate college courses and has $5,900 in tuition expenses and $300 in expenses for required books. Ingenious Engineering reimburses Renee for all the expenses. How should this reimbursement be treated?
The first $5,250 of the educational expenses is excluded from Renee's wages as a qualified fringe benefit, and the remaining amount is taxable as wage income to her.
Q16.Zenith Advisors, LLC provides the following benefits to its employees. Which of these is fully taxable to the employee?
Membership at a local fitness club with an annual value of $595.
Q17.Superior Foods, Inc. reimburses employees for their business-related expenses. Which of the following is taxable to the employee?
Qualified bicycle commuting reimbursement of $20 per month.
Q18.Heart Ambulance Services provides meals and lodging for ten paramedics at the workplace as a condition of employment because they are not allowed to leave the premises when they are on a shift. The employees eat and sleep on the premises for free. Which of the following statements is correct?
The meals and lodging are not taxable to the employee. The employer can deduct 50% of the meal expense, and 100% of the lodging.
Q19.Encore Delivery Services is having cash-flow difficulties, so it transfers a pickup truck to Bonnie, an employee, in lieu of wages. The company owes Bonnie $7,000 of wages at the time of the transfer. At the time of the transfer, the truck had a fair market value of $7,000 and an adjusted basis to Encore Delivery of $5,500. How should the company report this transaction?
Wage expense of $7,000; gain of $1,500.
Q20.All of the following are fringe benefits that may be excluded from an employee's pay except:
$25 gift card for the holidays.
Q21.If an employer offers moving expense reimbursements as an enticement for new employees, how should these reimbursements be treated, for tax purposes?
Moving expense reimbursements are taxable as wages to the employee, and deductible to the employer.
Q22.An employer can generally deduct the cost of which of the following fringe benefits provided to an employee?
Educational assistance.
Ready to move on?
- ▸ Explain at least 80% of these 22 rules without opening the answer, twice on different days.
- ▸ Score 80% across 20 or more mapped questions over two sessions, not one memorized round.
- ▸ Complete a timed Part 2 mock and return to this unit if its concepts remain flagged or missed.
Use these checks to choose your next study action. They do not predict a PSI scaled score.