Final answer:
Xander and Zinnia would be considered highly compensated employees in 2020. Xander qualifies based on earnings above $130,000, while Zinnia qualifies due to owning more than 5% of the company.
Step-by-step explanation:
To determine which of the employees would be considered a highly compensated employee in 2020, we need to look at the IRS guidelines for that year. According to the IRS, for the 2020 tax year, a highly compensated employee is one who either:
- Earned more than $130,000 in 2019, or
- Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned.
Given that the company does not take the 20% election, we would consider the following:
- Xander earned $137,000 last year and would be above the threshold for a highly compensated employee based on earnings alone.
- Yvette, being a 2% owner, does not meet the ownership criteria but does exceed the $125,000 threshold for earnings. However, since the threshold is $130,000, she would not be considered highly compensated based on her earnings.
- Zinnia owned 6% of the company last year, which exceeds the >5% ownership threshold, making her a highly compensated employee regardless of her earnings.
Therefore, based on the information given, the answer to the question is d.) Xander and Zinnia.