Question

Hawk Corporation offers its employees (on a nondiscriminatory basis) a choice of any one or all of the following benefits:

Benefit Cost Group term life insurance: 200
Hospitalization insurance for family members: 2,400
Child care payments: 1,800
=$ 4,400
If a benefit is not selected, the employee receives cash equal to the cost of the benefit. Kay, an employee, has a spouse who works for another employer that provides hospitalization insurance but no child care payments. Kay elects to receive the group term life insurance, the child care payments, and $2,400 of cash. How much gross income does she have?

Answer 1

Kay's gross income from the benefits selection at Hawk Corporation would be the cash received, $2,400, since the other benefits she chose, life insurance and child care payments, are typically not taxable.

Step-by-step explanation:

The question is concerning the amount of gross income that Kay, an employee of Hawk Corporation, has after selecting certain employee insurance and benefits. Kay has chosen to accept the group term life insurance and child care payments, as well as receive cash in lieu of the hospitalization insurance.

The group term life insurance costs $200, the child care payments cost $1,800, and the cash received instead of hospitalization insurance is $2,400. Typically, employer-provided benefits like term life insurance and child care payments are not considered taxable income, but the cash received in lieu of a benefit generally is.

Thus, Kay's gross income from these transactions would be the cash amount of $2,400, which needs to be included in her gross income.

Since she did not select the hospitalization insurance for family members, she will receive the cash equivalent of that benefit, which is $2,400.

Therefore, her gross income would be the sum of the value of the selected benefits plus the cash amount, which is $200 (group term life insurance) + $1,800 (child care payments) + $2,400 (cash equivalent of the unselected benefit) = $4,400.