Exam 12: Compensation

Lara,a single taxpayer with a 30 percent marginal tax rate,desires health insurance.The health insurance would cost Lara $5,000 to purchase if she pays for it herself (Lara's AGI is too high to receive any tax deduction for the insurance as a medical expense) .Lara's employer has a 40 percent marginal tax rate.Ignoring payroll taxes,what is the maximum amount of before-tax salary Lara would give up to receive health insurance?

Up to $10,000 of dependent care expenses can be excluded from an employee's compensation.The limit is $5,000.

Tom recently received 2,000 shares of restricted stock from his employer,Independence Corporation,when the share price was $10 per share.Tom's restricted shares vested three years later when the market price was $14.Tom held the shares for a little more than a year and sold them when the market price was $12.What is the amount of Tom's income or loss on the sale?

Which of the following items is not included on an employee's Form W-2?

An employee's income with respect to restricted stock is the fair market value on the vesting date.

Which of the items is not correct regarding withholding?

On Form W-4,an employee can only claim one allowance for each personal or dependency exemption that will be claimed on the employee's income tax return.

Tom recently received 2,000 shares of restricted stock from his employer,Independence Corporation,when the share price was $10 per share.Tom's restricted shares vested three years later when the market price was $14.Tom held the shares for a little more than a year and sold them when the market price was $20.What is the amount of Tom's income or loss on the vesting date?

Employers cannot discriminate between highly and non-highly compensated employees when providing taxable fringe benefits.

Which of the following is not an example of a nontaxable fringe benefit?

Which of the following isn't done by Form W-2?

Which of the following does not qualify as a "for the convenience of the employer" nontaxable fringe benefit?

Employees will always prefer to receive incentive stock options over nonqualified stock options.

Employers computing taxable income under the accrual method may deduct wages accrued as compensation expense in one year and paid in the subsequent year,as long as the company makes the payment within 2½ months after the employer's year-end.

Which of the following is a fringe benefit that employers can discriminate among employees?

Kevin is the financial manager of Levingston BMW.The shop allows employees to purchase up to two vehicles at a discount.This year Kevin purchased a 530 model and a new M3. If the average gross profit percentage of the shop's goods is 12%,what amount must Kevin include in income?

Which of the following statements is true regarding excess Social Security contributions by an employer?

Which of the following statements regarding employer provided educational benefits is true?

The date on which stock options are given to the employee is called the exercise date.The grant date is the date employees are initially allocated stock options.

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share.When the share price was $15 per share,she exercised all of her options.Eighteen months later she sold all of the shares for $20 per share.How much gain will Maren recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?