The questions below relate to the following facts:
An employee is given a $10,000 interest free loan from her employer on January 1 to buy a car to be used for business trips. Due to a serious illness, she used the car for only nine months of the year. Assume that the prescribed rate is 2 percent for the entire year.
-Her taxable benefit from the loan is $200 for the year.

Question

Quizplus · Accepted Answer

The taxable benefit on an interest-free loan from an employer is calculated by multiplying the loan amount by the prescribed interest rate for the duration of the loan. In this case, the loan amount is $10,000 and the prescribed rate is 2 percent, resulting in a taxable benefit of $200 for the entire year. Even though the employee only used the car for 9 months, the taxable benefit remains the same as it is based on the entire year.

The Questions Below Relate to the Following Facts