ACC250 Chapter 12 Flashcards
The difference between the fair market value of the employer’s stock and the amount employees pay to acquire the employer’s stock.
BARGAIN ELEMENT
An employer plan that allows employees to choose benefits from a menu of nontaxable fringe benefits or receive cash compensation in lieu of the benefits.
CAFETERIA PLAN
A nontaxable fringe benefit that allows employees to receive occasional or incidental benefits tax free.
DE MINIMIS FRINGE BENEFIT
The sale of stock acquired using incentive stock options prior to satisfying certain holding period requirements converting the options into nonqualifying stock options.
DISQUALIFYING DISPOSITION
A nontaxable fringe benefit that allows an employer to provide a certain amount of education benefits on an annual basis.
EDUCATIONAL ASSISTANCE BENEFIT
A person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business.
EMPLOYEE
The date employees use their stock options to acquire employer stock at a discounted price.
EXERCISE DATE
The price at which holders of stock options may purchase stock in the corporation issuing the option.
EXERCISE PRICE
A test used to make subjective determination such as whether the amount of salary paid to an employee is reasonable. Requires the taxpayer and the IRS to consider all the relevant facts and circumstances surrounding the situation in order to make a decision. Relevant factors are situation specific.
FACTS AND CIRCUMSTANCES TEST
Social Security and Medicare taxes upon earned income.
FICA TAXES
A plan that allows employees to contribute before-tax dollars that may be used for unreimbursed medical expenses or dependent care.
FLEXIBLE SPENDING ACCOUNT
Nontaxable benefits employers provide to employees and employee spouses or dependents in the form of meals or lodging if provided on the employer’s premises and are provided for a purpose that is helpful or convenient for the employer.
FOR THE CONVENIENCE OF EMPLOYER BENEFITS
Used to report wages paid to employees and the taxes withheld from them. The form is also used to report FICA taxes to the SSA.
FORM W-2
A form used by a taxpayer to supply her employer with the information necessary to determine the amount of tax to withhold from each paycheck.
FORM W-4
Noncash benefit provided to an employee as a form of compensation. As a general rule, fringe benefits are taxable. However, certain fringe benefits are excluded from gross income.
FRINGE BENEFITS
The date on which employees receive stock options to acquire employer stock at a specified price.
GRANT DATE
Term life insurance provided by an employer to a group of employees.
GROUP-TERM LIFE INSURANCE
A nontaxable fringe benefit covering health and accidents.
HEALTH AND ACCIDENT INSURANCE
A type of stock option that allows employees to defer the bargain element for regular tax purposes until the stock acquired from option exercises is sold. The bargain element is taxed at capital gains rates provided the stock is retained long enough to satisfy certain holding period requirements. Employers cannot deduct the bargain element as compensation expense.
INCENTIVE STOCK OPTION
A nontaxable fringe benefit that provides employer services to employees with little cost to the employer.
NO-ADDITIONAL-COST SERVICES
A type of stock option requiring employees to treat the bargain element from options exercised as oridinary income in the tax year options are exercised. Correspondingly, employers may deduct the bargain element as compensation expense in the year options are exercised.
NONQUALIFIED STOCK OPTION
An employer provided benefit that may be excluded from an employee’s income.
NONTAXABLE FRINGE BENEFIT
The use of a stock option to acquire employer stock at a specified price.
OPTION EXERCISE
A nontaxable fringe benefit that provides employer goods at a discount (but not below the employer’s cost) and services to employees at up to a 20% discount.
QUALIFIED EMPLOYEE DISCOUNT
A nontaxable fringe benefit that allows employers to pay moving-related expenses on behalf of employees.
QUALIFIED MOVING EXPENSE REIMBURSEMENT
A nontaxable fringe benefit provided by employers in the form of mass transit passes, parking or vanpool benefits.
QUALIFIED TRANSPORTATION FRINGE BENEFIT
Stock employees receive as compensation that may only be sold after the passage of time or after certain performance targets are achieved. Because employees are not entitled to immediately sell the restricted stock they receive, the value of the stock is generally not taxable to employees or deductible by employers until the selling restrictions lapse.
RESTRICTED STOCK
A fixed regular payment by an employer to an employee in exchange for the employee’s services which is usually paid on a monthly basis, but typically expressed as an annual amount.
SALARY
A phrase used to describe s situation where a taxpayer exercises stock options and then immediately sells the stock received through the option exercise.
SAME-DAY SALE
A special tax election that employees who receive restricted stock or other property with ownership restrictions can make to accelerate income recognition from the normal date when restrictions lapse to the date when the restricted stock or other property is granted. The election also accelerates the employer’s compensation deduction related to the restricted stock or other property.
SECTION 83b ELECTION
The legal price at which employees are entitled to buy or exercise employer stock (aka exercise price).
STRIKE PRICE
A noncash fringe benefit provided by employers to an employee that is included in taxable income.
TAXABLE FRINGE BENEFIT
To become legally entitled to receive a particular benefit without risk of forfeiture; to gain ownership.
VEST
The date on which the taxpayer becomes legally entitled to receive a particular benefit without risk of forfeiture.
VESTING DATE
A payment by an employer to an employee in exchange for the employee’s services which is typically expressed in hourly, daily, or piecework rate.
WAGES
A nontaxable fringe benefit provided by employers that would be deductible as an ordinary and necessary business expense if paid by an employee.
WORKING CONDITION FRINGE BENEFIT
