Karl works at Moe's grocery. This year Karl was paid $53,000 in salary, but he was allowed to purchase his groceries at 5 percent below Moe's cost. This year Karl spent $6,650 to purchase groceries, costing Moe $7,000. The groceries were worth $10,500. What amount must Karl include in his gross income?

Question

Quizplus · Accepted Answer

Karl's 5% discount on groceries is considered a fringe benefit, which is taxable. Thus, Karl's gross income would be his salary plus the value of his fringe benefit, which is the difference between the cost and the amount Karl paid for the groceries: $7,000 - $6,650 = $350. Therefore, Karl's gross income would be $53,000 + $350 = $53,350.

Karl Works at Moe's Grocery