Dirk and Diane Davis are both employed solely by XYZ Corporation and each earned

Question

Dirk and Diane Davis are both employed solely by XYZ Corporation and each earned $15,000 in wages for 2015. With respect to the following items, what amount should be reported as income in addition to their wages?

Advance commission for services to be performed in the future $1,500
Payments by XYZ under a qualified plan for dependent care 2,000
Sick pay due to illness paid by insurance company (premiums were paid for by XYZ) 3,000
Cash allowance to pay for meals during working hours 300
Payments by XYZ to a qualified pension plan 1,000
Group-term life insurance paid by XYZ on insurance coverage of $50,000 200

Explanation / Answer

Advance commission for services to be performed in the future

If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them.

Payments by XYZ under a qualified plan for dependent care

If you are an employee, the pay you receive must be included in your income.

Sick pay due to illness paid by insurance company (premiums were paid for by XYZ)

Pay you receive from your employer while you are sick or injured is part of your salary or wages. In addition, you must include in your income sick pay benefits received from any of the following payers.

Cash allowance to pay for meals during working hours
You can exclude any occasional meal you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. The exclusion applies, for example, to the following items.

This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility

Payments by XYZ to a qualified pension

Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. (Your employer can tell you whether your retirement plan is qualified.)

Group-term life insurance paid by XYZ on insurance coverage of $50,000

In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income.

Total income reported

• Details

• Amount

Advance commission for services to be performed in the future

If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them.

1. 1,500

Payments by XYZ under a qualified plan for dependent care

If you are an employee, the pay you receive must be included in your income.

1. 2,000

Sick pay due to illness paid by insurance company (premiums were paid for by XYZ)

Pay you receive from your employer while you are sick or injured is part of your salary or wages. In addition, you must include in your income sick pay benefits received from any of the following payers.

• A welfare fund.
• A state sickness or disability fund.
• An association of employers or employees.
• An insurance company, if your employer paid for the plan.
• However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable., here the company is paying the premiums so included in income)

1. 3,000

Cash allowance to pay for meals during working hours
You can exclude any occasional meal you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. The exclusion applies, for example, to the following items.

• Coffee, doughnuts, or soft drinks.
• Occasional meals or meal money provided to enable an employee to work overtime. However, the exclusion doesn't apply to meal money figured on the basis of hours worked.
• Occasional parties or picnics for employees and their guests.

This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility

Payments by XYZ to a qualified pension

Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. (Your employer can tell you whether your retirement plan is qualified.)

Group-term life insurance paid by XYZ on insurance coverage of $50,000

In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income.

Total income reported

1. 6,500

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