Exam 4: Employee Compensation

Megan accepts an assignment working in Germany for the first 9 months of 2018 from Ferguson Corporation. Ferguson Corporation paid Megan's salary of $78,000 plus an additional $7,000 bonus. Megan paid $5,000 to the German government in taxes on this income. During 2018, Megan also earned $9,000 of interest income from corporate bonds and $4,000 of dividend income from U.S. corporations. The maximum foreign earned income exclusion for 2018 is $103,900. How much should Megan include in her gross income on her U.S. tax return for 2018?

Barry's firm purchases a $31,000 automobile for his business and personal use. Barry uses the auto 80 percent for business and 20 percent for personal use in 2018. Assume that the IRS tables show that the annual lease-value of a $31,000 automobile is $8,250. If the company takes full depreciation deductions for the auto, how much income must Barry recognize?

Which of the following is not a purpose of a per diem allowance?

Samson Company offers its employees a cafeteria plan. Julie is allotted $5,000 to spend on fringe benefits. She chooses a health insurance plan that costs $2,500 per year, a $50,000 whole life insurance policy with a $500 annual premium, and the remaining $2,000 she uses for the company's child and dependent care program. What is Julie's taxable compensation if her salary is $42,000?

During 2018, Zach has net income from his sole proprietorship of $35,000. He also earned $106,600 as an employee in 2018. How much self-employment tax must Zach pay?

Briefly explain a cafeteria plan for employee fringe benefits.

ABC Corporation awarded John 1,000 options in 2014; each option allows him to purchase one share of ABC Corporation stock for $20. The ABC stock was selling for $18 per share at the grant date. In 2016, John exercised the options when the stock's selling price was $40 per share. In 2018, John sells the stock for $50 per share. How much gain does John recognize in 2018 when he sells the stock if they are incentive stock options?

A single employee who is not covered by an employer's retirement plan may always contribute at least $5,000 of earned income to his or her IRA.

All employee fringe benefits are tax free

Henry is an employee of Argus Corporation. His fringe benefits for the current year included: -$2,500 contributed by Argus to his qualified deferred compensation retirement plan. This year, the retirement plan earned $600 in interest and dividend income. Henry received no distributions from this plan -A $500,000 face value group term life insurance policy for which Argus paid premiums of $650. Henry is a key employee and it is a discriminatory plan. The uniform monthly premium for $1,000 of group term life insurance is $0.15. -The use of a company-owned automobile. The annual lease value of this car is $15,000. Henry used it 70% of the time (and miles) for personal use and 30% for business use. -Free parking in the company parking lot (valued at $100 per month) How much must Henry include in gross income?

Employees are subject to and employers withhold FICA and FUTA taxes.

Which of the following statements is correct?

A person who qualifies for the foreign earned income exclusion can exclude $16,624 of paid housing costs from income.

George's flexible spending plan allows him to select fringe benefits equal to 10 percent of his annual salary of $75,000. Which of the following would be taxable if selected?

As long as the plan is nondiscriminatory, any life insurance provided employees as a fringe benefit is tax-exempt.

In a defined benefit retirement plan, the employer bears the financial risk for the plan investments.

James owns a sole proprietorship. James pays his son Albert, age 17, $8,000 and his daughter Chloe, age 19, $11,000 for their work in the business. Both wages are reasonable for the work they perform. How much FICA tax must the sole proprietorship pay on the wages?

All of the following expenditures qualify for reimbursement under an educational reimbursement plan except:

Susie worked as a counselor at a wilderness camp for inner city children for six weeks during the summer. Her weekly benefits included a $200 salary, lodging in a private cabin valued at $60, and meals in the camp dining facilities worth $70. Susie was required by her employer to be available at all times during the 6-week period in case of emergencies. How much must Susie include in her gross income?

Which of the following would not be considered a de minimis fringe benefit?