Fringe Benefits Problem 1 You are the Tax Director of a large public company The CFO is very frugal and is looking for fringe benefits that will be viewed favorably and provide incentives to employees and executives, but perhaps not cost the company very much A consultant has provided the CFO a list of the following possible employee fringe benefits, and has claimed that all the benefits are tax free to the employee and deductible to the company (He does not have a degree from Kogod) Do you as Tax Director agree List of Concierge and Other Innovative Fringe Benefits 1 Times Pay Group Term Life Insurance with the ability to purchase up to 3 Times Pay On site gym On site daycare or emergency day care option Paid sabbaticals On site beauty salon Car cleaning First class airfare on business trips Free cell phones Pet friendly perks (1 pet medical insurance and 2 bring dog to work day, etc ) Fun and games foosball and pool tables in break rooms Treadmill desks Free food (color coded for most to least nutritious) (Google) Discounts on what you do or produce (goods 80 services 50 ) Cash and in kind perks with FMV of $50 from corporate credit cards and travel operators Free retirement seminars from professionals (retirement planners, wills and estate advice) Pizza Fridays Bagel Mondays Movies group movie outings or free passes Employee Service Awards (274(j) plans) for service and or longevity Employee awards points toward an item in a catalog (e g , IPad) Lucky Draw participate in company film making and public relations materials Company rock band Food trucks on campus Working sabbaticals at other company locations Lactation consultant, nursing moms rooms equipped with a refrigerator Employee Assistance Programs 3 free therapy sessions, concierge services, etc Cafeteria Plans Problem 2 True or False 1 A cafeteria plan can provide employees and partners with a choice of participating in a Section 401(k), a health insurance arrangement or cash 2 Former employees can participate in a cafeteria plan 3 Sole proprietors can participate in a cafeteria plan 4 A cafeteria plan can provide employees with a choice of vacation pay or group term life insurance 5 Salary reduction amounts that are exchanged for health benefits in a cafeteria plan are subject to income and employment taxes Short Answers Employers health FSA provides that any amount that is forfeited under the use it or lose it rule will be donated to charity of Employers choosing Does this health FSA meet the Section 125 rule XYZ is struggling financially In the past, it has offered employees leave without pay, but very few employees participated They are adopting a cafeteria plan to allow employees to purchase additional PTO For example, an employee currently earning $50,000 per year with two weeks of PTO could elect to reduce his salary by $1000 in exchange for an additional week of PTO Does this cafeteria plan meet the Section 125 rules Employee makes a salary reduction election of $1200 to Employers Health FSA for the 2018 plan year, which started on January 1 Employee also is enrolled in Employers insured group health plan for 2018 plan year On March 1, Employer announces certain changes to the group health plan that are effective immediately Specifically, the co pay for office visits will increase from $20 to $40, and the co pay for hospital visits will increase from $100 to $250 At about the same time employee learns she is pregnant As a result of these developments, employee believes her out of pocket medical expenses for 2018 will significantly exceed $1200 and she would like to update her salary reduction election for the remainder of the year accordingly Can she do this 4 Tom participates in a cafeteria plan Under the plan, Tom elects health benefits of $1800 for the year, reducing his salary by $150 per month In March, Joe needs extensive dental work and files a claim for $1000 How much will the plan pay for this claim What happens if Tom terminates work on May 1 and makes no further salary reduction contributions 5 Suzi participates in a cafeteria plan, under the plan, Suzi reduces her salary $150 month and elects health benefits of $1800 In June, Suzi had not filed a claim for any health benefits and left her job What can be paid to Suzi when she leaves her job Accountable Plans Problem 3 1 An employer with an expense arrangement that allows for advances requires the employees to account for expenses incurred semi annually Are amounts reimbursed under the plan taxable 2 An expense allowance arrangement allows for the reimbursement of travel expenses incurred for business travel CEO and CEOs spouse go to NY on a business trip and incur the following expenses CEO airfare $400 Spouse airfare $400 Meals $600 Hotel $1000 Theater tickets $300 How will the payment of these expenses be reported to the employee 3 Kurt drives 10,000 miles in 2018 for business Under her employers accountable plan, he gets reimbursed 60 cents a mile, which is more than the standard mileage rate of 54 5 cents a mile His total reimbursement is $6000 How is this payment reported 4 Kevin is paid $2000 a month by his employer On days that he travels away from his home on business, his employer designates $50 a day of his salary as paid to reimburse travel expenses How is the $50 reported when he travels away from Home When he does not ravel away from home 5 ABC Company pays its sales force substantiated expenses not in excess of $5000 per month John, a new hire, wants to have a larger expense budget and has offered to reduce his sales commissions to accommodate that larger payment ABC Company agrees and sets a $6000 budget for John, reducing commissions otherwise payable to John by the $1000 How should the $6000 be reported to John Assume John does not offer to reduce his commissions and ABC agrees to a cap of $6000 for John, leaving the other sales people with a $5000 monthly expense reimbursement cap How should the $6000 be reported to John

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Fringe Benefits Problem #1 You are the Tax Director of a large public company. The CFO is very frugal and is looking for fringe benefits

Fringe Benefits Problem #1

You are the Tax Director of a large public company. The CFO is very frugal and is looking for fringe benefits that will be viewed favorably and provide incentives to employees and executives, but perhaps not cost the company very much. A consultant has provided the CFO a list of the following possible employee fringe benefits, and has claimed that all the benefits are tax free to the employee and deductible to the company. (He does not have a degree from Kogod). Do you as Tax Director agree?

List of Concierge and Other Innovative Fringe Benefits:

- 1 Times Pay Group Term Life Insurance with the ability to purchase up to 3 Times Pay

- On-site gym

- On-site daycare or emergency day care option

- Paid sabbaticals

- On-site beauty salon

- Car cleaning

- First class airfare on business trips

- Free cell phones

- Pet-friendly perks (1. pet medical insurance and 2. bring dog to work day, etc.)

- Fun and games foosball and pool tables in break rooms

- Treadmill desks

- Free food (color coded for most to least nutritious) (Google)

- Discounts on what you do or produce (goods 80%/services 50%)

- Cash and in-kind perks with FMV of $50 from corporate credit cards and travel operators

- Free retirement seminars from professionals (retirement planners, wills and estate advice)

- Pizza Fridays/Bagel Mondays

- Movies group movie outings or free passes

- Employee Service Awards (274(j) plans) for service and/or longevity

- Employee awards points toward an item in a catalog (e.g., IPad)

- Lucky Draw - participate in company film-making and public relations materials

- Company rock band

- Food trucks on campus

- Working sabbaticals at other company locations

- Lactation consultant, nursing moms rooms equipped with a refrigerator

- Employee Assistance Programs: 3 free therapy sessions, concierge services, etc

Cafeteria Plans Problem #2

True or False

_____ 1. A cafeteria plan can provide employees and partners with a choice of

participating in a Section 401(k), a health insurance

arrangement or cash

_____ 2. Former employees can participate in a cafeteria plan.

_____ 3. Sole proprietors can participate in a cafeteria plan

_____ 4. A cafeteria plan can provide employees with a choice of

vacation pay or group term life insurance.

_____ 5. Salary reduction amounts that are exchanged for health

benefits in a cafeteria plan are subject to income and employment taxes.

Short Answers

Employers health FSA provides that any amount that is forfeited under

the use-it-or-lose-it rule will be donated to charity of Employers choosing.

Does this health FSA meet the Section 125 rule? ___________

XYZ is struggling financially. In the past, it has offered employees leave

without pay, but very few employees participated. They are adopting a cafeteria plan to allow employees to purchase additional PTO. For example, an employee currently earning $50,000 per year with two weeks of PTO could elect to reduce his salary by $1000 in exchange for an additional week of PTO. Does this cafeteria plan meet the Section 125 rules? __________

Employee makes a salary reduction election of $1200 to Employers Health

FSA for the 2018 plan year, which started on January 1. Employee also is enrolled in Employers insured group health plan for 2018 plan year. On March 1, Employer announces

certain changes to the group health plan that are effective immediately. Specifically, the co-pay for office visits will increase from $20 to $40, and the co-pay for hospital visits will increase from $100 to $250. At about the same time employee learns she is pregnant. As a result of these developments, employee believes her out-of-pocket medical expenses for 2018 will significantly exceed $1200 and she would like to update her salary reduction election for the remainder of the year accordingly. Can she do this? _________

4. Tom participates in a cafeteria plan. Under the plan, Tom elects health benefits of

$1800 for the year, reducing his salary by $150 per month. In March, Joe needs extensive dental work and files a claim for $1000. How much will the plan pay for this claim? What happens if Tom terminates work on May 1 and makes no further salary reduction contributions?

5. Suzi participates in a cafeteria plan, under the plan, Suzi reduces her salary $150/month and

elects health benefits of $1800. In June, Suzi had not filed a claim for any health benefits

and left her job. What can be paid to Suzi when she leaves her job? __________

Accountable Plans Problem #3

1. An employer with an expense arrangement that allows for advances requires the employees to account for expenses incurred semi-annually. Are amounts reimbursed under the plan taxable?

2. An expense allowance arrangement allows for the reimbursement of travel expenses

incurred for business travel. CEO and CEOs spouse go to NY on a business trip and incur the following expenses:

CEO airfare $400

Spouse airfare $400

Meals $600

Hotel $1000

Theater tickets $300

How will the payment of these expenses be reported to the employee?

__________________________________________________________

3. Kurt drives 10,000 miles in 2018 for business. Under her employers accountable plan, he gets reimbursed 60 cents a mile, which is more than the standard mileage rate of 54.5 cents a mile. His total reimbursement is $6000. How is this payment reported?

4. Kevin is paid $2000 a month by his employer. On days that he travels away from his home on business, his employer designates $50 a day of his salary as paid to reimburse travel expenses. How is the $50 reported when he travels away from Home? When he does not ravel away from home?

5. ABC Company pays its sales force substantiated expenses not in excess of $5000 per month. John, a new hire, wants to have a larger expense budget and has offered to reduce his sales commissions to accommodate that larger payment. ABC Company agrees and sets a $6000 budget for John, reducing commissions otherwise payable to John by the $1000. How should the $6000 be reported to John?

Assume John does not offer to reduce his commissions and ABC agrees to a cap of $6000 for John, leaving the other sales people with a $5000 monthly expense reimbursement cap. How should the $6000 be reported to John?