Employee Benefits Flashcards
Common types of voluntary deductions
401k contributions
Credit Union
Saving Bonds
Common types of involuntary deductions
Taxes, union dues, 401k loans
Common career benefits
Accrued Vacation
Sick time
If someone is paid twice a month how to calculate monthly, and yearly compensation
Gross pay X 24 = annual pay
Divide by twelve to get monthly pay
If someone is paid every other week, how to calculate monthly and yearly compensation
Gross pay X 26 = annual pay
Divide by twelve to get monthly pay
When are non-qualified stock options taxed?
When the option is exercised, regardless of whether the recipient holds the stock or sells it, the spread is counted as part of their taxable compensation and taxable at ordinary income rates.
As a result, the employer must withhold federal income tax, Social Security and Medicare tax at the time of exercise. The employer must also include that income in the employee’s W-2 wages at year-end.
When are Incentive Stock Options (ISOs)
ISOs qualify for special tax treatment if the employee meets both of two requirements:
ISO stock must be held at least two years after the grant date, and
also held at least one year after exercise.
The employee does not have to pay taxes when they receive the option grant or exercise the option. Instead, the employee reports taxable income only when they sell the stock.
When the ISO stock is sold after meeting the two requirements, the difference between the sales price and the strike price is a long-term capital gain to the employee. If the requirements are not met, then the bargain element is ordinary earned income to the employee.
How are HSAs taxed
Contributions made to your HSA by your employer may be excluded from your gross income. The contributions remain in your account until you use them. The earnings in the account aren’t taxed. Distributions used to pay for qualified medical expenses are tax-free.
What is a health saving account HSA
A health savings account (HSA) is an account you can use to pay a variety of medical costs. An HSA is only available to people who have a high-deductible health insurance plan. The contributions to an HSA are tax-deductible, and the account’s earnings (if invested) are tax-free, as are withdrawals for eligible medical expenses.
What is a flexible spending account(FSA)
A health flexible spending account (FSA) is a workplace account you can use to pay for certain medical costs that come out of your own pocket, such as insurance copays, prescriptions and other items needed to meet your health policy’s deductible. You contribute to the account as a payroll deduction from your salary, and in return the IRS agrees not to tax that portion of your salary.
What if I don’t use the money in my HSA
HSA money is yours — there are no deadlines to withdraw funds, even if you no longer have the same high-deductible health plan. You can even invest your HSA money in mutual funds or other securities, and the money can continue to grow tax-deferred and be used tax-free to pay for qualifying medical expenses at any time.
Use HSA money for medical reasons, though. If you’re under 65 and use the funds for other purposes, that money becomes taxable income, and you could face an additional 20% tax on the nonmedical use of HSA money.
Once you turn 65, you can use HSA money for anything, but you’ll owe tax on withdrawals that aren’t used to pay medical expenses.
What if I don’t use the money in my FSA
The major drawback of an FSA is that it is a use-or-lose plan. If you end up having a healthy year and have money left in your FSA at the end of the benefits period, your employer gets the excess money. Some things to note:
Rollovers: Some workplaces also allow employees to roll over a portion of the unused funds into next year’s account. The IRS limits FSA rollovers at $610 for 2023.
Grace period: Some workplaces also allow a few months’ grace period to spend FSA funds from the previous year, but they are not required to do so. Grace periods typically go to mid-March.
