Question

Nontaxable Fringe Benefits (LO.4) Dow, 42, is a manager for Winter Company. In addition to his 2019 $81,000 salary, he receives the following benefits from Winter during the current year: • Winter pays all its employees' health and accident insurance Premium paid by Winter for Dow's health insurance are $1,300 • Winter provides all employees with group term life insurance coverage equal to their annual salary. Premiums on Dow's $81,000 in coverage are $810. • Winter has a flexible benefits plan in which employees may participate to pay any costs not reimbursed by their health insurance. Dow has $2,650 withheld from his salary under the plan. His actual unreimbursed medical costs are $3,350. Winter pays Dow the $2,650 paid into the plan during the year. • All management-level Winter employees are entitled to employer provided parking. The cost of Dow's parking in a downtown garage is $3,500 for the year • Winter pays Dow's $200 monthly membership fee to a private health club located in the building in which Dow works. Dow uses the club during his lunch time and on weekends Click here to refer to Table 4-11 Gross Income from Group Term Life Insurance in Excess of $50,000 If required, round your answer to the nearest cent. Dow has a gross income of $ 98,575 X for the current year

Answer 1

The following amounts are to be included in the gross income of Dow:-

A) Salary for 2019- $81,000

B) Premium paid by winter for Dows Health Insurance- $1,300

C) premium on life insurance coverage of Dow paid by winter - $810

C) Salary reimbursed from amount withheld for the benefit plan under which the employees can participate to pay any costs not reimbursed by their health insurance- $ 2,650.

(note:- $3,350 is ignored as amount paid by winter to dow is only $2,650. Further it is assumed that the withheld amount of $2,650 is not included in salary given in point A)

D) Parking cost of Dow -$3,500.

E) Membership fee of private club= $200 per month *12 Months = $2,400

Total of the above Income = $91,660

So to this figure i.e $91,660 ,Gross income from Group term life insurance to be added. Calculation is as follows:-

Since Dow is 42 years aged he falls under 5th slab i.e Includible income fo $1.2 per $1,000 in excess of $50,000.

Since gross income of Dow is $91,660 which is $41,660 more than $50,000 includible income can be calculated as

Includible income = ($41,660/1000)*1.2 = $49.992 rounded off to $50.

After adding includible income Dow has gross income of $91,710 for the year 2019.