Question

Zeb, age 66, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2020: • Hospitalization insurance premiums for Zeb and his dependents. The cost of the coverage for Zeb is $2,350 per year, and the additional cost for his dependents is $3,600 per year. The plan has a $2,000 deductible, but his employer contributed $1,500 to Zeb's Health Savings Account (HSA). Zeb withdrew only $500 from the HSA, and the account earned $55 of interest during the year. • Insurance premiums of $500 for salary continuation payments. Under the plan, Zeb will receive his regular salary in the event he is unable to work due to illness. Zeb collected $8,600 on the policy to replace lost wages while he was ill during the year. • Zeb is a part-time student working on his bachelor's degree in engineering. His employer reimbursed his $4,500 tuition under a plan available to all full-time employees.

Answer 1

Answer:

	Amount Included	Amount Taxable	Explanation
a.	Hospitalization insurance premiums for Rex and his dependents.	$0	The Health Saving Account is very advantageous to account owners since funds are contributed to the account using pre-tax income. The withdrawal from HSA towards medical expenses are not taxable In addition, contributions made to an HSA are 100% tax-deductible, and any interest earned in the account is tax-free.
b.	Insurance premiums of $500 for salary continuation payments.	$0	Section 105 allows the establishment of qualified sick pay plans. Section 162 allows deductibility of funds spent on the sick pay plan and Section 106 states that if the plan is funded with insurance the premiums are not considered part of the taxable income of covered employees.
c.	The $8,600 Rex collected on the salary continuation policy to replace lost wages while he was ill during the year.	$8,600	This amount is included in gross income since employer had paid for the policy & it is in lieu of wages only
d.	Tuition reimbursement under a plan available to all full-time employees.	$0	Under following criteria tuition reimbursement program is not taxable in hands of employee : a. The program does not favor highly compensated employees b. The tuition reimbursement must not exceed $5,250. c. The money can only be used towards tuition, fees, and school supplies (including books).