Chapter 13 & 14 Employee Fringe and Group Benefits

Question 1

Fringe Benefit

Answer 1

A form of compensation where a benefit other than customary taxable wages is provided to an employee

Question 2

General valuation rule for fringe benefits

Answer 2

Fair market value

Question 3

Cents per mile

Answer 3

Used to determine the value of a vehicle provided to ban employee for personal use. Multiply the standard mileage rate by the total miles driven

Question 4

Lease value rule

Answer 4

Uses annual lease value table to determine the value of a car provided to an employee by using it’s annual lease value

Question 5

Nondiscrimination rule for fringe benefits

Answer 5

Some fringe benefits that discriminate in favor of certain employees will cause the amount to be taxable

Question 6

Tax free fringe benefits

Answer 6

Health, life and disability premiums
Benefits related to education and family up to certain limits
Benefits directly related to performing work

Question 7

Choice of taxable income or otherwise nontaxable fringe benefit

Answer 7

Fringe benefit becomes taxable because there was a choice

Question 8

No additional cost services

Answer 8

Employee may exclude the value of services provided by the employer that do not cause the employer to incur any substantial additional cost or loss of revenue
Airline, movie theater, bowling alley

Question 9

Qualified employee discounts

Answer 9

Value of discount is excluded from gross income limit
service - 20% of price
products - employer’s gross profit percentage multiplied by the price the employer charges non employee customers

Question 10

Group health insurance categories

Answer 10

Indemnity - not locked into network but has high premiums
Managed care plan - limited network and lower premiums

Question 11

Self insured plan

Answer 11

paired with either no insurance policy or a high deductible policy
uncommon
generally backed by a stop loss insurance policy with a reinsurer

Question 12

ACA plans

Answer 12

Bronze - 60%
Silver - 70%
Gold - 80%
Platinum - 90%

Question 13

COBRA election

Answer 13

Must be taken within 60 days of qualifying event

Question 14

Cafeteria plan

Answer 14

written plan that allows employees to receive cash or defer receipt of cash to purchase certain qualified tax-free fringe benefits
Cash is taxable and value of fringe benefit is not
Either is deductible to employer

Question 15

Group long term life insurance

Answer 15

Up to $50,000 of coverage is excluded from employee’s gross income

Question 16

HSA

Answer 16

Contributions by employer or employee
Distribution before 65 not used for medical expenses 20% penalty

Question 17

Voluntary Employees’ Beneficiary Association

Answer 17

Trust established by an employer to hold funds to provide employee welfare benefits in the future - at time of contribution employer receives income tax deduction

Question 18

One way buy sell agreements

Answer 18

Single successor owner purchases insurance on the current owner

Question 19

Buy sell cross purchase

Answer 19

Each partner has a life insurance policy on each other partner
Most appropriate for small partnerships

Question 20

Buy sell entity

Answer 20

The entity has a life insurance policy on each partner
Most appropriate for larger partnerships and corporations

Question 21

Disability overhead insurance

Answer 21

Cover the usual and necessary expenses of a business if a key employee becomes disabled
Premiums are deductible as business expense
Benefits taxable to the entity

Question 22

Disability buyout insurance

Answer 22

Covers the value of an owner’s interest in the business should the owner become disabled and is taxable
premiums are deductible

Question 23

Split dollar life insurance

Answer 23

Used to provide executives with life insurance at low cost
Can be discriminatory

Question 24

Split dollar life insurance structure

Answer 24

Endorsement
Employer owns policy, pays premium, withholds right to be repaid for all premiums, death benefit in excess of premiums is paid to beneficiaries tax free
Collateral assignment
Employee owns policy
Employers makes loan to employee to pay premium and charges interest, at death loan is repaid and remainder paid to beneficiaries tax free

Question 25

Key person life insurance

Answer 25

Entity purchases policy on key employees
Entity pays premiums and is beneficiary, premiums not deductible, death benefit is taxable

Question 26

Adoption Assistance

Answer 26

Can exclude up to $15,950 per adopted child

Question 27

Education assistance programs

Answer 27

up to $5,250 may be excluded from income

Question 28

Dependent care assistance

Answer 28

lesser of $5,00 or earned income of employee per year