Certified Payroll Professional (CPP) Practice Test Questions
The Certified Payroll Professional (CPP) Practice Exam is designed to help individuals prepare for the CPP certification, a key credential for professionals in payroll management. This exam offers a thorough set of questions covering essential payroll topics, including tax laws, wage garnishments, benefits administration, and more. Whether you’re a seasoned payroll professional or just starting out, this practice exam will help you test your knowledge and understand complex payroll concepts.
The questions are designed to reflect the real-world challenges payroll professionals face and align with the topics covered in the official CPP exam. With detailed explanations provided for each question, you’ll gain a deeper understanding of payroll principles, federal and state tax regulations, and payroll best practices. This exam also helps identify areas where further study may be needed, allowing you to focus your preparation efficiently.
Using this practice exam will increase your confidence and readiness to take the official CPP exam. Whether you’re preparing for the first time or looking to refresh your knowledge, this resource is an invaluable tool for anyone looking to earn the CPP certification and enhance their career in payroll management. Prepare for the exam with practical insights and sharpen your skills to ensure success in achieving this professional milestone.
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Sample CPP exam questions and answers
Which of the following forms must be provided to an employee by January 31st each year?
Form 941
B. Form W-2
C. Form 940
D. Form I-9
Answer: B. Form W-2
Explanation: Form W-2 reports an employee’s annual wages and the amount of taxes withheld. It must be provided by January 31 of the following year.
What is the current federal minimum wage (as of 2025)?
$6.55
B. $7.25
C. $8.00
D. $10.00
Answer: B. $7.25
Explanation: The federal minimum wage remains $7.25 per hour, although states may have higher requirements.
What is the maximum amount of wages subject to Social Security tax in 2025?
$142,800
B. $160,200
C. $168,600
D. $185,000
Answer: C. $168,600
Explanation: In 2025, the wage base for Social Security tax is $168,600. Earnings above this are not taxed for Social Security.
Which federal form reports quarterly federal payroll tax returns?
Form 940
B. Form 1099
C. Form 941
D. Form W-4
Answer: C. Form 941
Explanation: Form 941 is filed quarterly to report income taxes, Social Security, and Medicare withheld from employee wages.
What is the primary purpose of Form W-4?
To report tax deposits
B. To apply for a payroll ID
C. To allow employees to claim withholding allowances
D. To report unemployment taxes
Answer: C. To allow employees to claim withholding allowances
Explanation: Employees complete Form W-4 to determine how much federal income tax to withhold from their paycheck.
Which type of compensation is subject to federal income tax withholding?
Qualified moving expense reimbursements
B. Health insurance premiums paid by employer
C. Tips received by employees
D. Employer contributions to 401(k)
Answer: C. Tips received by employees
Explanation: Tips are considered taxable income and subject to income tax withholding.
What agency enforces the Fair Labor Standards Act (FLSA)?
IRS
B. DOL
C. SSA
D. EEOC
Answer: B. DOL
Explanation: The Department of Labor (DOL) enforces the FLSA, which covers minimum wage, overtime, and child labor laws.
How often must FUTA taxes be deposited if more than $500 is accrued?
Monthly
B. Quarterly
C. Annually
D. Semi-annually
Answer: B. Quarterly
Explanation: FUTA taxes must be deposited quarterly if the liability exceeds $500 in a quarter.
Which of the following benefits is considered a taxable fringe benefit?
Health insurance
B. De minimis meals
C. Company car used for personal use
D. 401(k) contributions
Answer: C. Company car used for personal use
Explanation: Personal use of a company car is a taxable fringe benefit that must be reported.
What is the penalty for late deposit of payroll taxes (1-5 days late)?
0.5%
B. 2%
C. 5%
D. 10%
Answer: B. 2%
Explanation: The IRS imposes a 2% penalty for payroll taxes deposited 1 to 5 days late.
Which method can be used for calculating federal income tax withholding?
Tiered tax method
B. Aggregate method
C. Flat rate method only
D. Percentage and hourly method
Answer: B. Aggregate method
Explanation: The aggregate method is often used for supplemental wages when combined with regular wages.
How long must payroll records be retained under FLSA requirements?
1 year
B. 2 years
C. 3 years
D. 7 years
Answer: C. 3 years
Explanation: Payroll records must be retained for at least 3 years under the Fair Labor Standards Act.
What is the primary accounting entry for accrued wages payable?
Debit Wages Payable, Credit Cash
B. Debit Cash, Credit Wages Payable
C. Debit Wages Expense, Credit Wages Payable
D. Debit Payroll Tax Expense, Credit Wages Payable
Answer: C. Debit Wages Expense, Credit Wages Payable
Explanation: This entry records unpaid wages owed to employees at the end of an accounting period.
What is the backup withholding rate in 2025?
24%
B. 28%
C. 30%
D. 15%
Answer: A. 24%
Explanation: The IRS backup withholding rate is 24% when a payee fails to provide a correct TIN.
What is the purpose of Form 940?
Reporting state unemployment taxes
B. Reporting quarterly wages
C. Reporting annual federal unemployment taxes
D. Reporting employee tax elections
Answer: C. Reporting annual federal unemployment taxes
Explanation: Employers use Form 940 to report and pay FUTA annually.
An employee earns $120,000 annually and contributes $5,000 to a 401(k). What is their taxable wage base for Social Security?
$115,000
B. $120,000
C. $125,000
D. $100,000
Answer: B. $120,000
Explanation: 401(k) contributions are excluded from income tax but not from Social Security wages.
Which of the following is not subject to FUTA tax?
Independent contractor compensation
B. Full-time employee wages
C. Part-time employee wages
D. Temporary employee wages
Answer: A. Independent contractor compensation
Explanation: Independent contractors are not employees, so their payments are not subject to FUTA.
What is the current Medicare tax rate for employees?
1.45%
B. 6.2%
C. 0.9%
D. 2.0%
Answer: A. 1.45%
Explanation: Employees pay 1.45% for Medicare, with an additional 0.9% for high earners.
What type of pay is exempt from overtime calculations?
Shift differential pay
B. Piece-rate pay
C. Discretionary bonuses
D. Non-discretionary bonuses
Answer: C. Discretionary bonuses
Explanation: Discretionary bonuses are not required to be included in regular rate of pay calculations.
What is the threshold for highly compensated employees under FLSA (as of 2025)?
$100,000
B. $107,432
C. $120,000
D. $150,000
Answer: B. $107,432
Explanation: An employee earning $107,432 or more with certain duties may qualify as exempt under FLSA.
Which of the following laws requires equal pay for equal work?
Title VII
B. ADEA
C. Equal Pay Act
D. FLSA
Answer: C. Equal Pay Act
Explanation: The Equal Pay Act prohibits wage discrimination based on gender.
How are imputed income items treated on payroll?
They reduce taxable wages
B. They are ignored
C. They are added to gross income for tax purposes
D. They are deferred
Answer: C. They are added to gross income for tax purposes
Explanation: Imputed income increases the employee’s taxable income for tax reporting.
Which form must be retained by the employer but not filed with the IRS?
W-2
B. I-9
C. 941
D. 1099-NEC
Answer: B. I-9
Explanation: Form I-9 verifies employment eligibility and must be retained but not submitted.
What defines an exempt employee under the FLSA?
Eligible for overtime
B. Paid less than minimum wage
C. Not eligible for overtime
D. Paid hourly
Answer: C. Not eligible for overtime
Explanation: Exempt employees are salaried and meet certain criteria that exclude them from overtime.
What is the frequency for filing Form 941?
Monthly
B. Annually
C. Quarterly
D. Biweekly
Answer: C. Quarterly
Explanation: Employers file Form 941 each quarter to report payroll taxes.
What type of deduction is a post-tax deduction?
Traditional 401(k)
B. Roth 401(k)
C. Health insurance premiums
D. FSA contributions
Answer: B. Roth 401(k)
Explanation: Roth 401(k) contributions are made after taxes and are post-tax deductions.
What is an example of a voluntary deduction?
Social Security
B. Medicare
C. Union dues
D. Federal income tax
Answer: C. Union dues
Explanation: Union dues are optional and considered voluntary deductions.
What is the IRS standard mileage reimbursement rate for 2025?
65.5 cents
B. 67 cents
C. 58 cents
D. 62 cents
Answer: B. 67 cents
Explanation: As of 2025, the standard mileage reimbursement rate is 67 cents per mile for business use.
Which of the following payroll software features is most important for compliance?
Custom fonts
B. Automated tax updates
C. Employee chat feature
D. GIF support
Answer: B. Automated tax updates
Explanation: Compliance depends on accurate and timely updates to tax tables and regulations.
What is the tax implication of group-term life insurance over $50,000?
Fully excluded from tax
B. Employer pays the tax
C. Value is included in taxable income
D. Exempt from all payroll taxes
Answer: C. Value is included in taxable income
Explanation: The cost of group-term life insurance over $50,000 is taxable and must be reported on Form W-2.