Income and Assets — Enrolled Agent — SEE Part 1 (Individuals) Practice Test

This Enrolled Agent — SEE Part 1 (Individuals) Income and Assets practice set has 108 practice questions based on the official exam materials, each with an instant explanation.

Sample questions

Three questions from the Income and Assets bank with the correct answer and an explanation. The practice quiz above draws 30 questions at random from the same bank.

1. For federal income-tax purposes, an employee's wages, salaries, and bonuses reported on Form W-2, box 1 are:

   • Included in gross income as compensation for services — Correct answer
   • Excluded from gross income unless the employer chooses to report them
   • Taxable only to the extent they exceed the standard deduction
   • Reported only on the state return, not the federal return

   Explanation: Under IRC §61(a)(1), gross income includes compensation for services, including wages, salaries, and bonuses. The Form W-2 box 1 amount is fully includible on Form 1040 regardless of the standard deduction, which is applied separately.

   Handbook: Income and Assets — Taxability of Wages and Salaries

2. Marcus is a restaurant server who received $2,600 in cash tips during the year in addition to his W-2 wages. He reported each month's tips to his employer. How are the tips treated?

   • They are taxable compensation includible in gross income — Correct answer
   • Cash tips are gifts from customers and are never taxable
   • Only tips paid by credit card are taxable; cash tips are not
   • Tips are taxable only if they exceed $5,000 for the year

   Explanation: Tips are compensation for services and are includible in gross income under IRC §61. An employee who receives $20 or more in tips in a month must report them to the employer under IRC §6053; all tips, including cash tips, remain taxable whether or not reported to the employer.

   Handbook: Income and Assets — Taxability of Wages and Salaries

3. All of the following amounts an employee receives from an employer are includible in taxable wages EXCEPT:

   • A qualified de minimis fringe benefit, such as occasional personal use of the office copier — Correct answer
   • A year-end cash bonus
   • Vacation pay for unused leave
   • Severance pay on termination of employment

   Explanation: A de minimis fringe benefit is excluded from gross income under IRC §132(a)(4) because accounting for it is unreasonable or administratively impracticable. Cash bonuses, vacation pay, and severance pay are all taxable compensation under IRC §61.

   Handbook: Income and Assets — Taxability of Wages and Salaries