12. Holly was injured while working in a factory and received $12,000 as workers’ compensation while she was unable to work because of the injury. Jill, who was selfemployed, was also injured and unable to work. Jill collected $12,000 on an insurance policy she had purchased to replace her loss of income while she was unable to work.
How much are Holly and Jill each required to include in their gross income?
13. LO.2 Melba’s employer provides a flexible spending plan for medical and dental expenses not covered by insurance. Melba contributed $1,500 during 2013, but by the end of December 2013, she still had $300 remaining in the account. Melba intended to get new eyeglasses, but was too busy during the holiday season to do so. Is Melba required to forfeit the balance in her flexible spending account? Explain.
14. LO.2, 5 Casey is in the 15% marginal tax bracket, and Jean is in the 35% marginal tax bracket. Their employer is experiencing financial difficulties and cannot continue to pay for the company’s health insurance plan. The annual premiums are approximately $8,000 per employee. The employer has proposed to either (1) require the employee to pay the premiums or (2) reduce each employee’s pay by $10,000 per year with the employer paying the premium.
Which option is less objectionable to Casey, and which is less objectionable to Jean?
15. LO.2 What is the difference between a cafeteria plan and an employee flexible spending plan?
16. LO.2 Ted works for Azure Motors, an automobile dealership. All employees can buy a car at the company’s cost plus 2%. The company does not charge employees the $300 dealer preparation fee that nonemployees must pay. Ted purchased an automobile for $29,580 ($29,000 + $580). The company’s cost was $29,000. The price for a nonemployee would have been $33,900 ($33,600 + $300 preparation fee). What is Ted’s gross income from the purchase of the automobile?
17. LO.2, 5 Wilbur has been offered a job at a salary that would put him in the 25% marginal tax bracket. In addition to his salary, he would receive health insurance coverage.
Another potential employer does not offer health insurance but has agreed to match the first offer on an after-tax and insurance basis. The cost of health insurance comparable to that provided by the other potential employer is $9,000 per year. How much more in salary must the second potential employer pay so that Wilbur’s financial status will be the same under both offers?