Retire Ch 13 Employee Benefits Fringe Benefits Flashcards by John Mussman

An employee fringe benefit is not a form of compensation; rather, a fringe benefit is merely an extra that is given to employees.

a. True b. False

b. False

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Employee fringe benefits are taxable as wages unless specifically excluded by the IRC.

a. True b. False

a. True

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If an employee fringe benefit is discriminatory then it will always cause inclusion in the employee’s income.

a. True b. False

b. False

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If a meal is provided to more than 50% of the employees for the convenience of the employer, then all of the meals are considered to be for the convenience of the employer.

a. True b. False

True

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In order for lodging to qualify for the exclusion from the employee’s gross income, the employee must be required to accept lodging as a condition of employment.

a. True b. False

True

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Athletic facility dues provided to employees for an off-site gym are excludable from income.

a. True b. False

b. False

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Educational assistance programs lose their tax benefits if the plan is discriminatory.

a. True b. False

a. True

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A qualified tuition reduction plan may never apply to graduate level work.
a. True b. False

b. False

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Dependent care assistance can be excluded up to $2,500 for single individuals and $5,000 for married individuals filing jointly.

a. True b. False

b. False

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No-additional-cost services provided to employees may be discriminatory and be excluded from the employee’s gross income.

a. True b. False

b. False

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Qualified employee discounts are discounts given to the employees on property or services offered to an employer’s customer in the ordinary course of business.

a. True b. False

True

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Working condition fringe benefits may be discriminatory and still maintain the favored tax treatment.

a. True b. False

a. True

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A de minimis employee fringe benefit is property or service provided to an employee that is so small in value that accounting for it is unreasonable.

a. True b. False

a. True

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Deductible moving expenses include moving household goods, lodging, and meals during the move.

a. True b. False

b. False

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Qualified transportation benefits may be given by the employer directly or through a bona fide reimbursement arrangement.

a. True b. False

True

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A cash award of $300 given to an employee as part of a written plan is excludable from the employee’s income.

a. True b. False

b. False

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Adoption assistance benefits may be excluded from the employee’s gross income and are not subject to Social Security and Medicare taxes.

a. True b. False

b. False

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Which of the following benefits provided by an employer to its employees is currently taxable to the employee?

a. Employees of the DEF Department Store are allowed a 15% discount on store merchandise. DEF’s normal gross profit percentage is 20%.

b. On a space-available basis, undergraduate tuition is waived by Private University for the dependent children of employees (value of $15,000 per semester).

c. Fly Airline allows its employees to fly free when there are open seats available on a flight (average value of $200).

d. Incidental personal use of a company car.

The correct answer is d.

Personal use of a company car is a taxable fringe benefit. All of the other employer fringe benefits listed may be excluded from the employee’s gross income.

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Norman is the manager of Airline Highway Motel. He lives in Unit 12. Norman was given the option to live at the motel if he would also look after the night auditing (the value of his reviews is $400 per month) responsibilities. The value of the motel unit on a monthly basis is $800, but Unit 12 rents on a daily basis for $100 per day.
How much, if any, does Norman have to include in his gross income for living on the premises of his employer?

a. $0 lodging for the convenience of the employer.
b. $400 per month.
c. $800 per month.
d. $3,000 per month.

The correct answer is c.

Norman is not required by the employer to live on the premises and therefore must include the value of the lodging in his gross income.

Meredith is an employee of a large company. They are very interested in the betterment of the health of all employees. The company has a health facility on its premises for the exclusive use of its employees and their dependents. A comparable private health club membership at a public facility would cost $2,400 per year.
How much, if any, must Meredith include in her gross income if her 10-year old daughter uses the facilities for one-half of the year?

a. $0.
b. $600.
c. $1,200.
d. $2,400

The correct answer is a.

The value of a health facility provided by the employer, on the employer’s premises, and solely for the use of employees and their dependents is excluded from gross income by the employee

Which of the employee fringe benefits listed below, if provided by the employer, are both deductible by the employer and not included in an employee’s gross income after 2017?

Business periodical subscriptions.
Season tickets to professional football games.
Parking provided near its business (employer pays $90 per month).
The use of an on-premises athletic facility (value of $180 per employee per month).

a. 2 only.
b. 1 and 4.
c. 1, 3, and 4.
d. 1, 2, 3, and 4

The correct answer is b.

Season tickets to professional football games are includible in the gross income of the employee receiving the tickets.

Periodicals and athletic facilities are both deductible and not included in gross income.

Effective with TCJA 2017, season tickets to professional football games are deductible by the employer as compensation expense as long as the cost is includible in the gross income of the employee
receiving the tickets.

Qualified transportation fringe benefits are not deductible by the employer after 2017 as a result of 2017 TCJA.

Oscar holds two jobs - a full-time job with R Corporation and a part-time job with Z Corporation. He uses his car to drive to work. The mileage is as follows: from Oscar’s home to R is 70 miles; from R to Z is 10 miles; and from Z to Oscar’s home is 70 miles. Oscar’s deductible mileage for each work day is:

a. 0 miles.
b. 10 miles.
c. 80 miles.
d. 150 miles

The correct answer is a.

For tax years 2018-2025, there is no mileage deduction available for employees

How much, if any, does Norman have to include in his gross income for living on the premises of his employer?

$0 lodging for the convenience of the employer.
$400 per month.
$800 per month.
$3,000 per month.

$800 per month.
Rationale

Norman is not required by the employer to live on the premises and therefore must include the value of the lodging in his gross income.

Professor Stabler has one child, Benson, who is 18 years old and a full-time student at Disc University, a private university where Professor Stabler is the chairman of the Finance Department and a full-time employee. The cost of undergraduate tuition at Disc University is $15,000 per semester, but the children of all full-time employees may attend Disc University for free. Last semester Benson took a Russian history class that was oversubscribed. Twenty-five students were on the waiting list, but Benson was number two. Three students got into the full class.

Which of the following are correct?

Professor Stabler has to include the value of the tuition remission in his income for last semester.
Professor Stabler would not have to include the value of the tuition remission in his income if it was a graduate program that Benson was enrolled in.

1 only.
2 only.
Both 1 and 2.
Neither 1 nor 2.

Neither 1 nor 2.

Rationale

There are no requirements that there is space available for the tuition reduction exclusion.

This exception applies only to education below the graduate level.

UPDATED FOR 2024: Jean works for A&R Law Firm, which has a qualified transportation and parking benefits program. A&R provides for $315 for qualified parking per month. How much of the qualified parking is excluded from Jean's gross income per month and how much is deductible by A&R? $0 excluded and $0 deductible by A&R. $315 excluded and $315 deductible by A&R. $315 excluded and $0 deductible by A&R. $0 excluded and $315 deductible by A&R

$315 excluded and $0 deductible by A&R. Rationale TCJA 2017 disallows a deduction by the employer for expenses associated with providing any qualified transportation fringe to employees of a taxpayer after 2017. However, these expenses are not included in income for the employee. The exception is for safety reasons.

Perry is a secretary at JKL Law Firm. JKL provides him with free sodas at his discretion. Perry estimates that he drinks $20 worth of sodas per month. How much must Perry include in his annual gross income related to the sodas? $0. $20. $200. $240

$0. Rationale The value of employer-provided de minimis fringe benefits may be excluded from an employee’s gross income. However, after 2017, the employer's deduction for the sodas is limited to 50% due to TCJA 2017.

The qualified tuition reduction does not apply to: Current employees. Former employees who retired or left on disability. Widow(er)s of a person who died within three years of the employee’s retirement. Non-dependent children of current employees.

Non-dependent children of current employees. Rationale Qualified tuition reduction does not apply to non-dependent children of current employees. Option c is tricky but correct, as widow(er)s of former employees who retired, regardless of 3 years of more, would be eligible for the qualified tuition reduction.

Harry and Sally are married and they have one child, Meg, age 14, who is in the 6th grade. Meg is a difficult child, and she is cared for in the afternoon by the Sisters of Reformation, a group of Catholic nuns. Sally pays $6,000 per year for the childcare. Sally’s company has a dependent care assistance program . If Sally makes the maximum use of the dependent care assistance program, how much can she exclude from her income if she files a joint return with Harry? $0. $2,500. $5,000. $6,000.

$0. Rationale Meg is over 13 years old and therefore does not qualify for the dependent care assistance program. For a child who qualifies, the limit is $5,000

Which of the employee fringe benefits listed below, if provided by the employer, are both deductible by the employer and not included in an employee’s gross income after 2017? 1. Business periodical subscriptions. 2. Season tickets to professional football games. 3. Parking provided near its business (employer pays $90 per month). 4. The use of an on-premises athletic facilities (value of $180 per employee per month). 2 only. 1 and 4. 1, 3, and 4. 1, 2, 3, and 4

1 and 4. Rationale Season tickets to professional football games are includible in the gross income of the employee receiving the tickets. Periodicals and athletic facilities are both deductible and not included in gross income. Effective with TCJA 2017, season tickets to professional football games are deductible by the employer as compensation expense as long as the cost is includible in the gross income of the employee receiving the tickets. Qualified transportation fringe benefits are not deductible by the employer after 2017 as a result of 2017 TCJA.

Baldwin is the president of ZZZ Best Carpet Cleaners. Baldwin has a home with 18,000 square feet of floor space. Every week, Baldwin has the cleaning crew of ZZZ Best Carpet Cleaners clean his carpets. He theorizes that this is good training for the crew. Baldwin’s CPA tells him that he can avoid the inclusion of the value of the services in his gross income if he offers to have any employees carpet cleaned at a reduction from retail. Baldwin establishes such a plan and allows a 50% reduction for all employees including himself. This year, the total retail value of the cleaning at Baldwin’s house was $20,000, of which he paid $10,000. How much, if any, must Baldwin include in gross income resulting from the discount? $5,000. $6,000. $8,000. $10,000.

$6,000. Rationale $6,000 [$10,000 - ($20,000 x 0.20)]. The maximum discount excludable from an employee’s gross income is 20%. Therefore, Baldwin must include an amount in his gross income equal to the total discount he received ($10,000) less the maximum excludable discount ($4,000) or $6,000.

Which phrase best completes this sentence: “The exclusion for no-additional-cost services applies to any service provided by the employer to an employee that _____.” Causes the employer to lose significant revenue. Does not cause the employee to incur substantial additional cost. Does not cause the employer to incur any substantial additional costs or lose revenue. Does not cause the employer to incur any additional costs but causes the employer to lose revenue.

Does not cause the employer to incur any substantial additional costs or lose revenue. Rationale Option a is incorrect because the employer is losing revenue. Option b is incorrect because it is focused on the employer’s cost, but it should weigh the impact on the employer’s revenue. Option d is also incorrect because no additional costs does not cause the “lose revenue” aspect of the test.

Petra, who is in the oil and gas industry, moved from Houston to New Orleans in 2023. Her expenses for the move included $400 for truck rental, $100 for lodging, and $200 of pre-move house-hunting expenses. If Petra’s employer reimbursed her $600, how much of the reimbursement is included in her gross income? $0. $100. $200. $600.

600. Rationale TCJA 2017 suspended the exclusion from gross income for moving expenses reimbursement for years 2018-2025, except for armed service members. Thus, $600 is included in gross income for Petra. Prior to 2018 and after 2025: Petra has $500 of qualifying expenditures. $400 for the truck rental and $100 for the lodging. Pre-move house-hunting expenses are not qualifying moving expenses. Any reimbursement in excess of $500 is included in her gross income. Thus, $100 ($600 - $500) is included in her gross income.

UPDATED FOR 2024: ProGen Inc. has a written adoption assistance program that pays adoption expenses including fees, attorney fees, and other normal expenses. ProGen paid adoption expenses for the following employees during 2024. Employee and Age Employee AGI Adoptee and Age Amount Paid Health of Adoptee Jamie (34) $150,000 Curtis (18) $16,810 Excellent Lionel (34) $325,000 Nicole (6) $16,8100 Excellent Sheryl (34) $80,000 Levi (3) $16,810 Excellent Thomas (32) $100,000 Rhett (5) $16,810 Excellent Which of the following have income inclusions resulting from the employer adoption plan? No one, $16,810 is the maximum excludable limit for 2024. Jamie. Lionel. Jamie and Lionel.

Jamie and Lionel. Rationale Jamie has adopted an 18-year-old whose health is excellent, so he must include the amount paid as income. An “eligible child” must be under the age of 18 or be physically or mentally incapable of caring for himself. Lionel is over the phaseout ($291,150 for 2024) and must include the $16,810 in income.

ABC Corp. provides employees with discounts on the flat panel televisions they manufacture. The discounts were established using a length of service and employee status methodology. Length of Service Employee Discount Officer Discount 1-5 years 10% 20% > 5-10 years 15% 30% > 10 years 20% 40% The gross profit percentage for ABC is 40%. Faye is an officer employee who has been with ABC Corp. for 13 years. For Christmas this year, Faye bought a 56-inch flat panel television that retails for $8,800 and she received a discount appropriate to the schedule discounts listed above. For this year, how much, if any, does Faye have to include in gross income as a result of this transaction? $0. $1,760. $2,640. $3,520.

$3,520. Rationale The plan is clearly discriminatory; therefore, Faye, who is an officer, must include the entire discount of $3,520 ($8,800 x 0.40).

Patrick works for the Atlanta Falcons in the marketing department. The Falcons have an athletic facility on the premises for employees other than football players. The value provided by the Falcons to Patrick of this fringe benefit is not included in Patrick’s gross income if: Substantially all of the use of the facility is to be employees of the Falcons, their spouses or their dependent. The facility is operated by a separate entity from the Falcons, called Super Sets. The facility is five miles away from the Falcons premises. None of the above.

Substantially all of the use of the facility is to be employees of the Falcons, their spouses or their dependent. Rationale Option b is incorrect because the employer must operate the “on premises” athletic facility. Option c is incorrect because the facility must be “on the premises.”

Which of the following benefits provided by an employer to its employees is currently taxable to the employee? Employees of the DEF Department Store are allowed a 15% discount on store merchandise. DEF’s normal gross profit percentage is 20%. On a space-available basis, undergraduate tuition is waived by Private University for the dependent children of employees (value of $15,000 per semester). Fly Airline allows its employees to fly free when there are open seats available on a flight (average value of $200). Incidental personal use of a company car.

Incidental personal use of a company car. Rationale Personal use of a company car is a taxable fringe benefit. All of the other employer fringe benefits listed may be excluded from the employee’s gross income.

Kohler Company allows a 25% discount to all nonofficer employees. Officers are allowed a 30% discount on company products. Kohler’s gross profit percent is 35%. Which of the following is true? An officer who takes a 30% discount must include the extra 5% (30%-25%) in their gross income. Any discounts taken by any employee is includible in the employee’s gross income because the plan is discriminatory. All discounts taken by officers (30%) are includible in their gross income because the plan is discriminatory. None of the discounts taken by any employee are includible in their gross income because the discount, in all cases, is less than the company's gross profit percentage.

All discounts taken by officers (30%) are includible in their gross income because the plan is discriminatory. Rationale The plan is discriminatory against non-highly compensated employees; therefore, all discounts actually taken by officers are includible in the officers’ income, not just the excess of what is available to the nonofficers. Any discount taken by a nonofficer would be excluded from the employee’s gross income.

Which of the following is false as to adoption assistance programs? 1. The amount paid is excluded from the employee’s income regardless of the employee’s income level. 2. The unlimited amount paid is excluded from the employee’s income with a phaseout of AGI at certain levels. 3. Up to $16,810 for 2024 is excluded from the employee’s income with a phaseout of AGI at certain levels. 1 only. 3 only. 1 and 2. All of the above.

1 and 2. Rationale Statements 1 and 2 are false. Statement 1 does not limit the expense paid nor does it acknowledge the phaseout of $252,150 through $292,150 for 2024. Statement 2 does not reveal that there is a limit on the expense for adoption assistance programs.

Meredith is an employee of a large company. They are very interested in the betterment of the health of all employees. The company has a health facility on its premises for the exclusive use of its employees and their dependents. A comparable private health club membership at a public facility would cost $2,400 per year. How much, if any, must Meredith include in her gross income if her 10-year-old daughter uses the facilities for one-half of the year? $0. $600. $1,200. $2,400.

$0. Rationale The value of a health facility provided by the employer, on the employer’s premises, and solely for the use of employees and their dependents is excluded from gross income by the employee.

Greg is employed by a large corporation with 400 employees. The corporation provides its employees with a no-cost gym membership at a local YMCA. The cost of the membership is $60 per month, which is completely paid for by Greg’s employer. How much must Greg include in his yearly gross income related to this no-cost fringe benefit? $0. $60. $600. $720.

$720. Rationale In order for the value of the athletic facilities to be excluded from an employee’s gross income, the athletic facilities must be located on the employer’s business premises and must be for the exclusive use of the employees and their dependents. Greg’s membership is at a public YMCA and is therefore taxable. 12 x $60 = $720.

Which of the following are examples of fringe benefits that are not de minimus? The commuting use of an employer-provided automobile or other vehicle more than one day per month. Membership in a private country club. Employer-provided group term life insurance on the life of the spouse of an employee. All of the above.

All of the above. Rationale All of the above are not de minimus.

which of the following benefits provided by an employer to its employees is currently taxable to the employee? A.Employees of the DEF Department Store are allowed a 15% discount on store merchandise. DEF’s normal gross profit percentage is 20%. B.On a space-available basis, undergraduate tuition is waived by Private University for the dependent children of employees (value of $15,000 per semester). C.Fly Airline allows its employees to fly free when there are open seats available on a flight (average value of $200). D.Incidental personal use of a company car.

The correct answer is D. Personal use of a company car is a taxable fringe benefit. All of the other employer fringe benefits listed may be excluded from the employee’s gross income.

Which of the employee fringe benefits listed below, if provided by the employer, would be included in an employee’s gross income? Business periodical subscriptions Season tickets to professional football games Free parking provided near its business (value of $90 per month) The use of an on-premises athletic facilities (value of $180 per month) A.2 only B.1 and 2 C.1, 2, and 3 D.1, 2, 3, and 4

The correct answer is A. Season tickets to professional football games are includible in the gross income of the employee receiving the tickets. All of the other fringe benefits are excludable. Occasional tickets to sporting events would be excludable.

Eric moved from Houston to New Orleans. His expenses for the move included $400 for truck rental, $100 for lodging, and $200 of pre-move house-hunting expenses. If Eric’s employer reimbursed him $600, how much of the reimbursement is included in his gross income? A.$0 B.$100 C.$200 D.$600

Solution: The correct answer is D. Under TCJA moving expenses are no longer deductible and any amounts reimbursed by the employer are taxable as income to the EE

Which of the following most accurately describes how to determine the fair market value of an employer-provided fringe benefit? A.The amount the employer paid to provide the fringe benefit to the employee. B.The amount the employee considers the fringe benefit to be worth. C.The amount the employer would be willing to pay to provide the fringe benefit. D.The amount an employee would need to pay a third party to purchase or lease the same or comparable fringe benefit on the same or comparable terms in the same geographic area.

he correct answer is D. The fair market value of a fringe benefit is the amount an employee would need to pay a third party on the open market to purchase or lease the same or comparable fringe benefit on the same or comparable terms in the same geographic area. This most closely matches the definition of fair market value for tax purposes. Choice A is incorrect. The fair market value is not based on the employer's cost to provide the fringe benefit. Choice B is incorrect. The employee's perceived value of the fringe benefit does not determine the fair market value. Choice C is incorrect. The amount the employer would be willing to pay does not impact the determination of the fair market value.