Question

How many levels of taxation apply to corporate earnings paid out as qualified fringe

benefits? Explain.

Answer 1

Qualified fringe benefits paid out from corporate earnings are subject to two levels of taxation: corporate income tax and individual income tax.

Step-by-step explanation:

Corporate earnings paid out as qualified fringe benefits are subject to two levels of taxation:

1. Corporate income tax: Companies that are corporations must pay income taxes on profits earned during the year, which includes earnings paid out as qualified fringe benefits.
2. Individual income tax: When the fringe benefits are received by the employee, they are considered as taxable income and are subject to individual income tax.

For example, if a corporation provides its employees with health insurance as a qualified fringe benefit, the corporation will pay corporate income tax on the cost of providing the insurance, and the employees will have to include the value of the insurance as part of their taxable income and pay individual income tax on it.