What is James’s gross income from the above?

1.
Matilda works for a company with 1,000 employees. The
company has a hospitalization insurance plan that covers all employees.
However, the employee must pay the first $3,000 of his or her medical expenses
each year. Each year, the employer contributes $1,500 to each employee’s health
savings account (HSA). Matilda’s employer made the contributions in 2014 and
2015, and the account earned $100 interest in 2015. At the end of 2015, Matilda
withdrew $3,100 from the account to pay the deductible portion of her medical
expenses for the year and other medical expenses not covered by the
hospitalization insurance policy. As a result, Matilda must include in her 2015
gross income:

a. $0.

b. $100.

c. $1,600.

d. $3,100.

e. None of the above.

2.
All employees of United Company are covered by a group hospitalization
insurance plan, but the employees must pay the premiums ($8,000 for each
employee). None of the employees has sufficient medical expenses to deduct the
premiums. Instead of giving raises next year, United is considering paying the
employee’s hospitalization insurance premiums. If the change is made, the
employee’s after­tax and insurance pay will:

a. Decrease by the same
amount for all employees.

b. Increase more for the
lower paid employees (10% and 15% marginal tax bracket).

c. Increase more for the
higher income (35% marginal tax bracket) employees.

d. Increase by the same
amount for all employees.

e. None of the above.

3.
The plant union is negotiating with the Eagle Company, which
is on the verge of bankruptcy. Eagle has offered to pay for the employees’ hospitalization
insurance in exchange for a wage reduction. The employees each currently pay
premiums of $4,000 a year for their insurance.

a. If an employee’s
wages are reduced by $5,000 and the employee is in the 28% marginal tax
bracket, the employee would benefit from the offer.

b. If an employee’s
wages are reduced by $4,000 and the employee is in the 15% marginal tax
bracket, the employee would benefit from the offer.

c. If an employee’s
wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket,
the employee would benefit from the offer.

d. a., b., and c.

e. None of the above.

4.
James, a cash basis taxpayer, received the following
compensation and fringe benefits in the current year:

Salary $66,000

Disability income
protection premiums 3,000

Long-term care
insurance premiums 4,000

His actual salary was
$72,000. He received only $66,000 because his salary was garnished and the
employer paid $6,000 on James’s credit card debt he owed. The wage continuation
insurance is available to all employees and pays the employee three-fourths of
the regular salary if the employee is sick or disabled. The long-term care
insurance is available to all employees and pays $150 per day towards a nursing
home or similar facility. What is James’s gross income from the above?

a.
$66,000.

b.
$72,000.

c.
$73,000.

d.
$75,000.

e. None of the above.

5.
The First Chance Casino has gambling facilities, a bar, a
restaurant, and a hotel. All employees are allowed to obtain food from the
restaurant at no charge during working hours. In the case of the employees who
operate the gambling facilities, bar, and restaurant, 60% of all of Casino’s
employees, the meals are provided for the convenience of the Casino. However,
the hotel workers, demanded equal treatment and therefore were also allowed to
eat in the restaurant at no charge while they are at work. Which of the
following is correct?

a. All the employees are
required to include the value of the meals in their gross income.

b. Only the restaurant
employees may exclude the value of their meals from gross income.

c. Only the employees
who work in gambling, the bar, and the restaurant may exclude the meals from
gross income.

d. All of the employees
may exclude the value of the meals from gross income.

e. None of the above.

6.
An employee can exclude from gross income the value of meals
provided by his or her employer whenever:

a. The meal is not
extravagant.

b. The meals are
provided on the employer’s premises for the employer’s convenience.

c. There are no places
to eat near the work location.

d. The meals are
provided for the convenience of the employee.

e. None of the above.

7.
Ridge is the manager of a motel. As a condition of his
employment, Ridge is required to live in a room on the premises so that he
would be there in case of emergencies. Ridge considered this a fringe benefit,
since he would otherwise be required to pay $800 per month rent. The room that
Ridge occupied normally rented for $70 per night, or $2,100 per month. On the
average, 90% of the motel rooms were occupied. As a result of this rent-free
use of a room, Ridge is required to include in gross income.

a. $0.

b. $800 per month.

c. $2,100 per month.

d. $1,890 ($2,100 ×
.90).

e. None of the above.

8.
Adam repairs power lines for the Egret Utilities Company. He
is generally working on a power line during the lunch hour. He must eat when
and where he can and still get his work done. He usually purchases something at
a convenience store and eats in his truck. Egret reimburses Adam for the cost
of his meals.

a. Adam must include the
reimbursement in his gross income.

b. Adam can exclude the
reimbursement from his gross income since the meals are provided for the
convenience of the employer.

c. Adam can exclude the
reimbursement from his gross income because he eats the meals on the employer’s
business premises (the truck).

d. Adam may exclude from
his gross income the difference between what he paid for the meals and what it
would have cost him to eat at home.

e. None of the above.

9.
Tommy, a senior at State College, receives free room and
board as full compensation for working as a resident advisor at the university
dormitory. The regular housing contract is $2,000 a year in total, $1,200 for
lodging and $800 for meals in the dormitory. Tommy had the option of receiving
the meals or $800 in cash. Tommy accepted the meals. What must Tommy include in
gross income from working as a resident advisor?

a. All items can be
excluded from gross income as a scholarship.

b. The meals must be
included in gross income.

c. The meals may be
excluded because he did not receive cash.

d. The lodging must be
included in gross income because it was compensation for services.

e. None of the above.

10.Under the Swan
Company’s cafeteria plan, all full­time employees are allowed to select any
combination of the benefits below, but the total received by the employee
cannot exceed $8,000 a year.

I.
Group medical and hospitalization insurance for the
employee, $3,600 a year.

II.
Group medical and hospitalization insurance for the
employee’s spouse and children, $1,200 a year.

III.
Child-care payments, actual cost but not more than $4,800 a
year.

IV.
Cash required to bring the total of benefits and cash to
$8,000.

Which of the
following statements is true?

a. Sam, a full-time
employee, selects choices II and III and $2,000 cash. His gross income must
include the $2,000.

b. Paul, a full­time
employee, elects to receive $8,000 cash because his wife’s employer provided
these same insurance benefits for him. Paul is not required to include the
$8,000 in gross income.

c. Sue, a full-time
employee, elects to receive choices I, II and $3,200 for III. Sue is required
to include $3,200 in gross income.

d. All of the above.

e. None of the above.

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