TAX- Taxation of Employee Benefits

Question 1

Reimbursement for business expenses are included in income of the employee unless they are under an accountable plan?

Answer 1

True

Question 2

Employee benefits are generally excluded as long as…?

Answer 2

There is no discrimination in favor of highly compensated employees

Highly compensated employees will have to include in the income

General other employees do not have to include.

Question 3

What are the limits on group-term life insurance?

Answer 3

$50,000 face value will be tax free

Question 4

If the employer pays premiums for whole-life insurance policy, the premium is included in income?

Answer 4

True

Question 5

Are health insurance premiums excluded?

Answer 5

True

Question 6

Insurance for wage continuation insurance is not included in income?

Answer 6

False- it is included

Question 7

If an employer pays for disability insurance is it taxed and deducted?

Answer 7

Excluded from taxpayers income, deductible for employer (usually not deductible for employee who pays for it themselves)

Question 8

Benefits received by the taxpayer from a policy PAID FOR BY THE TAXPAYER- is it excluded from income?

Answer 8

It is excluded IF it is paid for by the taxpayer

If the employer paid, benefits received are included.

Question 9

For meals and lodging to be excluded as a fringe benefit, what needs to be met?

Answer 9

• Furnished for convince of the employer
• On the employers premises
• Meals must be in-kind

Question 10

Are no additional cost services included from income?

Answer 10

No (example an empty seat on a airplane and employee gets to fly for free. There is no extra cost to the company to let that person fly for free)

Question 11

What are the rules for employee discounts to be excluded from income?

Answer 11

Limited to gross profit or 20% for services

Gifts less than $25

Question 12

IF an employer pays for child and dependent care services, how much can be excluded

Answer 12

$5000 or 2,500 for filing separately

Question 13

How much can employees exclude for tuition reimbursement?

Answer 13

$5,250 only if reimbursement is non-discriminatory

Question 14

If an employee is reimbursed for adoption expenses, will be excluded?

Answer 14

Yes but phased out

Question 15

What is a cafeteria plan and what is taxed?

Answer 15

Employee picks and chooses certain benefits

Cash is treated as wages and taxed

Question 16

IF a employee is able to have stock options, how are you taxed on the three different dates (grant date, exercise date, sale date). For a non-qualified stock option

Answer 16

NON- QUALIFIED STOCK OPTION:

Grant Date: NO TAX

Exercise Date : if the price increases, there is ordinary income for the employee

Sale Date: Capital gain (LT or ST)

Question 17

IF a employee is able to have stock options, how are you taxed on the three different dates (grant date, exercise date, sale date). For a incentive stock option

Answer 17

Grant Date: No Tax

Exercise Date: None

Sale Date: Ordinary Income or Capital Gain (both) or just capital gains

Question 18

For a non-qualified stock option, how do you calculate the ordinary income on exercise date?

Answer 18

(FMV of the stock - Exercise Price) * # of shares exercised

Question 19

Does the employer get a compensation deduction for stock options?

Answer 19

Yes, anytime a employee recognizes ordinary income, it is deductible for the employer

Question 20

How do you calculate the capital gain for non-qualified stock options at the date of sale?

Answer 20

Amount realized - adjusted basis

Adjusted basis = (amount paid per share + Ordinary Income per share) - FMV at the grant date