Question 1

Which of the following benefits provided by an employer is subject to withholding and must be reported on the employee's W-2?
A)payment of an employee's professional dues
B)meals provided on the premises for the employer's convenience
C)$400 cash award for long-term service,awarded at a special employee awards event
D)none of the above

Accepted Answer

Cash awards, even if given for long-term service, are considered taxable income and must be reported on the employee's W-2 form.

Question 2

Discuss briefly the options available for avoiding double taxation for the U.S.citizen earning income from sources outside the United States.

Accepted Answer

The answer of Discuss briefly the options available for avoiding...

Question 3

The tax law encourages certain forms of fringe benefits by allowing employees to deduct the value of the benefit from gross income and allowing employers to exclude the cost.

Accepted Answer

The tax law allows employees to exclude certain fringe benefits from their gross income, not deduct them, and employers can often deduct the cost of providing these benefits.

Question 4

Bob,an employee of Modern Corp.,receives a fringe benefit (in lieu of a salary increase)of $1,000.Bob is in a 32% tax bracket.The fringe benefit is nontaxable to Bob.If he had instead paid for the benefit out of his own money,the cost would not be deductible.Bob's after-tax savings from receiving the tax-free benefit is
A)$0.
B)$320.
C)$680.
D)$1,000.

Accepted Answer

If the fringe benefit is nontaxable to Bob, then he saves the amount of taxes he would have paid on the benefit if he had received it as salary. In this case, Bob is in a 32% tax bracket, so he saves 32% of $1,000, which is $320.

Question 5

Cafeteria plans are valuable to employers because
A)they allow employees to eat their meals quickly and stay on the premises to be available for work.
B)they allow employers to avoid paying for benefits that are not needed or desired by employees.
C)they allow employers to provide benefits for higher income employees only.
D)none of the above.

Accepted Answer

Cafeteria plans allow employers to offer a range of benefits to employees, who can then choose the ones they want. This allows employers to avoid paying for benefits that are not desired or needed by employees, ultimately resulting in cost savings for the employer. Option A is not necessarily a direct benefit of cafeteria plans, and option C is not a recommended practice as it could lead to discrimination. Option D is not the correct answer as cafeteria plans do have value for employers.

Question 6

Faye is a marketing manager for Healthy Corp.She earns a salary of $100,000 and has received the following benefits:
• Healthy pays 75% of all employees' health and accident insurance coverage.Healthy paid $6,000 towards the cost of Faye's health insurance during the year.
• Faye participates in the cafeteria plan and had elected to have $2,000 withheld from her pay to cover the remaining cost of the health insurance premiums and an additional $1,500 to cover dental and other health care costs not paid by insurance (i.e.,funding a flexible spending account).The full $1,500 was used to pay for various qualifying medical costs.
• Healthy pays the cost of disability insurance coverage for all employees.The insurance will pay 75% of salary if employees are out of work for a significant period.The cost of Faye's premiums was $600.
• Healthy pays for the cost of veterinary insurance for all employees.The cost of coverage for Faye's dog was $400.
• Healthy pays for the cost of daycare for its employees' children.The cost for Faye's two children was $8,000.
• All employees receive a 20% discount on Healthy's products.The typical markup on their products is 25%.Faye enjoyed $1,200 of savings through the discount program.
• Faye won the manager of the year award earlier in the year and received an all-expense paid week at a desert spa valued at $3,500.
• Healthy pays Faye's annual membership dues of $500 to the American Marketing Association.
• Healthy paid for the full $2,500 cost of Faye's attendance at the American Marketing Association's annual conference in Orlando.
How much income must Faye recognize from her employment?

Accepted Answer

The answer of Faye is a marketing manager for Healthy...

Question 7

Felice is in the hotel management field.She rents an apartment near the hotel so she can walk to work.She pays $1,000 per month for rent.Felice has just been offered a similar position at a different hotel.The salary will be $14,000 lower,but they do require she live in the hotel to be on call and provide her with a suite to live in.Felice has a marginal tax rate of 32%.She will be financially ahead by accepting the new position.

Accepted Answer

By living in the suite provided by the new hotel, Felice will save $12,000 in rent ($1,000/month x 12 months). Her salary decrease of $14,000 will be offset by this savings, resulting in a net increase of $2,000. With a marginal tax rate of 32%, this increase will be further reduced to $1,360, but Felice will still be financially ahead by accepting the new position.

Question 8

Employers must report the value of nontaxable meals and lodging provided to employees on the employees' W-2s at year-end.

Accepted Answer

Nontaxable meals and lodging provided for the convenience of the employer are not required to be reported on the employee's W-2.

Question 9

Trisha is married and has young children.The couple is in the 37% tax bracket.In order for Trisha and her husband to work,they pay $5,000 for daycare which earns them a $1,000 dependent care credit.Trisha has been offered a new job.The new job will pay a $5,000 lower salary,but the new employer will offer $5,000 of paid child care.Trisha cannot claim the dependent care credit if she receives employer-paid child care.Which of the following statements is correct? (Ignore payroll taxes.)
A)Trisha will have $850 additional after-tax income if she accepts the new job.
B)Trisha will lose $4,000 net value if she accepts the new job.
C)Trisha will have $1,850 additional after-tax income if she accepts the new job.
D)Trisha will lose $3,150 of net value if she accepts the new job.

Accepted Answer

Currently, Trisha pays $5,000 for daycare and earns a $1,000 dependent care credit, resulting in a net cost of $4,000 for child care. If she accepts the new job, her child care will be paid for by her employer, so she will not receive the dependent care credit. However, she will also not have to pay $5,000 out of pocket for child care. Therefore, her net savings will be $1,000. Additionally, even though she will have a lower salary, she will be in a lower tax bracket due to her lower income and the reduced cost of child care. This will result in a net increase of $850 in after-tax income.

Quiz 20: Gross Income: Exclusions

Which of the following benefits provided by an employer is subject to withholding and must be reported on the employee's W-2?

Discuss briefly the options available for avoiding double taxation for the U.S.citizen earning income from sources outside the United States.

The tax law encourages certain forms of fringe benefits by allowing employees to deduct the value of the benefit from gross income and allowing employers to exclude the cost.

Cafeteria plans are valuable to employers because

Employers must report the value of nontaxable meals and lodging provided to employees on the employees' W-2s at year-end.