Lorraine Is an Employee of National Corporation

Lorraine is an employee of National Corporation. National pays the medical insurance premiums of all of its employees. Because of large deductible levels and limitations on the payment of certain medical expenses, the basic health insurance policy does not cover all medical costs. During the current year, National adopted a Flexible Benefits Plan into which employees can contribute to pay for any medical expenses not covered by insurance. Lorraine pays $2,500 into the plan during the current year. Premiums paid by National for Lorraine's medical insurance were $2,400. I. There is no tax effect from the $2,500 payment into the Flexible Benefits Plan. II. Lorraine's gross income from her National salary is reduced by the $3,000 payment into the Flexible Benefits Plan. III. If Lorraine does not use the entire $2,500 paid into the Flexible Benefits Plan during the current year, she may obtain a refund of any amounts not spent from National. IV. Amounts paid for medical costs by the medical insurance policy are excluded from Lorraine's gross income.

A) Statements II and IV are correct.
B) Statements I and IV are correct.
C) Statements III and IV are correct.
D) Only statement II is correct.
E) Only statement IV is correct.