Taxation of Employee Benefits Flashcards
What’s the general rule re: benefits received by an employee?
Included in gross income.
Is reimbursement of employee business expense included in income of the employee? Exception?
Yes (the employee might get deduction to offset the income).
Reimbursement under an accountable plan are not required to be reported on the W-2.
When employee benefits are generally excluded from income?
When the benefits plans do not discriminate in favor of highly compensated employees (apply to everyone).
What happens when benefits do discriminate?
Highly compensated employees must include it in income, but in general other employees don’t.
Life insurance (group-term policy - can’t discriminate): whats the tax treatment for employees when the employer pays the premiums?
up to $50,000 can be excluded from income.
Amount over $50,000 is taxed based on IRS rate based on the TP’s age.
What’s the difference between term insurance and whole-life insurance?
Whole: builds cash value.
Term: it doesn’t.
A whole-life insurance: Tax treatment when an employer pays premiums?
The value of premiums are included in income.
Health insurance premiums paid by employer: Tax treatment?
Excluded.
Long-term care policies paid by employer: Tax treatment?
Excluded.
Wage continuation insurance paid by employer: Tax treatment?
Included.
Disability insurance: Tax treatment for premiums paid by TP?
Not deductible.
Disability insurance: Tax treatment for premiums paid by an employer?
For employer: deductible.
For employee: excluded from income.
Disability insurance: Tax treatment for benefits received when premiums were paid by TP?
Excluded from income.
Disability insurance: Tax treatment for benefits received when premiums were paid by employer?
Included in income.
What are 3 criteria for meals to be excluded?
- Furnished for convenience of employer.
- On employer’s premise.
- Meals must be in-kind.
When can lodging provided by employer be excluded? At what value?
If it was a condition of employment.
FMV.
Tax treatment for no-additional cost services (let employees use extra seatings on airplanes)?
Excluded.
Tax treatment for employee discounts? Limits?
Excluded.
Limited to gross profit percentage (cost) or 20% for services.
Tax treatment for working condition fringe (ex: subscription to tax journal)?
Excluded.
Tax treatment for de minimis fringes (ex: use of copy/fax machines, free coffee)?
Excluded because it is minimum.
Tax treatment for nominal gifts (up to $25)?
Excluded.
Tax treatment for pmts for transportation and parking ?
Excluded. ($255 per month in 2017) ($255 per month in 2017)
Tax treatment for employer-provided retirement planning advice?
Excluded.
Tax treatment for pmts from employer for expenses that would be deductible as moving expense?
Excluded.
Tax treatment for child and dependent care services provided by employer (on location or reimbursement) so that the employee can work? Limits?
Excluded.
Up to $5,000. $2,500 if married filling separately.
Tax treatment for undergraduate, graduate tuition fees, books, and supplies provided by employer (not discriminated)? Limits?
Excluded.
up to $5,250.
Tax treatment for undergraduate tuition waivers for employees, spouses, and dependent children for employees of nonprofit educational institutions? Criteria?
Excluded.
If it is a qualified plan (not discriminated).
When is graduate tuition waivers excluded from income? Tax treatment for cash pmts?
When TPs are graduate teaching/research assistants (full-time students).
Included.
Tax treatment for expenses incurred to adopt a child if employer reimbursed? Limit?
Excluded.
Phase out at higher AGI level.
Tax treatment for cafeteria plan?
If employees have a option to choose between fringe benefits and cash, fringe benefits is excluded. If the employee chooses cash, taxed as wages.
Examples of cafeteria plans?
Benefits/coverage under accident or health plans.
LT or ST disability coverage.
Group-term life insurance coverage.
Dependent care assistance programs.
Section 401(k) plans.
Contributions through health savings accounts.
Adoptions assistance.
What are 2 types of stock options?
Incentive stock option.
Non-qualified stock option.
Non-qualified stock option: whats the tax classification on grant date, exercise date, and sale date?
None.
Ordinary income.
Capital gain (ST or LT depends on holding period).
Incentive stock option: whats the tax classification on grant date, exercise date, and sale date?
None.
None (except for amt purposes).
There can be only capital gain or ordinary income and capital gain (amt.adj.reverses).
Stock options: What portion does a corporation receive deduction?
Ordinary income portion only.
Non-qualified stock option: Formula to compute ordinary income on exercise date?
(FMV of stock - Exercise price) x # of shares exercised.
What is criteria to be qualified as incentive option re: option price?
Has to be at least equal to the FMV on the grant date.
Non-qualified stock option: Formula to compute capital gain on sale date?
Amount realized - adjusted basis (option price + ordinary income: should be added to basis) = Capital gain.
Incentive stock options: what are 2 criteria for the gain on sale is LTCG? What happens if these 2 criteria are not met?
- Held for more than 1 yr.
- Not sold until after 2 years from the date the option was granted.
Treated as non-qualified stock option.
Incentive stock option: when does income recognized when it becomes non-qualified option?
On sale date rather than exercise date.
What are criteria to be qualified as cafeteria plans?
1) all participants must be employees;
2) participants may choose between two or more benefits composed of cash or qualified benefits;
3) participants are required to make elections among the benefits;
4) the plan must be in writing and have certain specified information;
5) the plan may not provide participants with deferred income, except for under 401(k) plans.
