Nontaxable Fringe Benefits (LO. 4)

Tia is married and is employed by Carrera Auto Parts. In 2020, Carrera established high-deductible health insurance for all its employees. The plan has a $2,800 deductible for married taxpayers. Carrera also contributes 5% of each employees salary to a Health Savings Account. Tias salary is $45,000 in 2020 and $47,000 in 2021. Tia makes the maximum allowable contribution to her HSA in 2020 and 2021. She received $700 from the HSA for her 2020 medical expenses. In 2021, she spends $1,300 on medical expenses from her HSA. The MSA earns $24 in 2020 and $42 in 2021.

Round intermediate computations and final tax liability to the nearest dollar. Assume the max HSA contribution is the same for 2020 and 2021.

Donative Items (LO. 2) Allison dies during the current year. She is covered by a $1,200,000 life insurance policy payable to her husband, Bob. Bob elects to receive the policy proceeds in 10 annual installments of $142,000. Complete the letter to Bob explaining the tax consequences of his installment election. Your Insurance Company Dear Bob, Regarding Allison's life insurance policy, life insurance proceeds are excluded from tax. Therefore, the $1,200,000 face value of the policy is excluded as it is received. However, the earnings on the policy during the time it is held by the insurance company are not excludable The total interest earned is $ 220,000 . As each payment on the policy is received, you will exclude 120,000 and include $ 41,000 X in gross income