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
Someone paid twice a month- how to calculate monthly and yearly compensation
- Gross pay x 24 = annual pay
- divide by 12 to get monthly pay
Someone paid every other week- how to calculate monthly and yearly compensation
- Gross pay x 26 = annual pay
- divide by 12 to get monthly pay
When are non-qualified 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 time of exercise
Employer must also include that income in the employee’s W-2 wages at year end
When are ISOs taxed?
ISOs qualify for special tax treatment if employee meets both of the 2 requirements:
- ISO stock must be held at least 2 years after the grant date and at least one year after exercise (EGG)
- Employee does not have to pay taxes when they receive the option grant or exercise the option. Instead employee reports taxable income only when selling stock.
- When ISO stock is sold after meeting 2 requirements, the difference between the sale price and the strike price is LTCG to employee.
- If requirements are not met, 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
Contributions remain in the account until you use them
Earnings in the account are not taxed
Distributions for qualified medical expenses are tax free
Health Savings Account
(HSA)
An account used to pay a variety of medical costs
Only available to people with HDHP
Contributions are tax-deductible
Account earnings (if invested) are tax-free as are withdrawals for eligible medical expenses
Flexible Spending Account
(FSA)
A workplace account you can use to pay for certain medical costs that come out of your own pocket like insurance copays, prescriptions and other items needed to meet your health insurance policy’s deductible
You contribute to account as a deduction from salary
IRS will not tax that portion of salary
What if I don’t use the money in my HSA?
- The money is yours- no deadlines to withdraw funds, even if you don’t have the same HDHP. You can invest funds, money will grow tax-deferred and be tax free to pay for qualifying medical expenses at any time
- Use HSA funds for medical reasons: if under 65 and use funds for other purposes, money becomes taxable and you could face an additional 20% tax on non-medical use of HSA money
- Once turning 65, you can use money for anything but you’ll owe tax on any non-medical expenses
What if I don’t use the money in my FSA?
USE IT OR LOSE IT PLAN
- If you have money left in plan at end of benefit period, your employer gets the excess money
Some things to note:
1. Rollovers: some workplaces also allow employees to roll over a portion of the unused funds to next year’s account. IRS limit for 2025: $660
2. Grace period: some workplaces also allow a few months’ grace period to spend FSA funds from previous year but companies are not required to do so. Usually until March,
Use of Company Car
Use of company car is not a career asset
You would not get to keep the car when you leave the job
Home office furniture
Not a career asset
Corporate golf membership is a career asset
Unemployment Benefits
Are career assets
Golf membership is not a career asset unless company pays for it
