Question

Cash received by an employee from an employer:

a. Is not included in gross income if it was not earned.
b. Is not taxable unless the payor is legally obligated to make the payment.
c. Must always be included in gross income.
d. May be included in gross income although the payor is not legally obligated to make the payment.
e. None of these.

Answer 1

Cash received by an employee from an employer is not taxable unless the payor is legally obligated to make the payment.

Step-by-step explanation:

The answer to the question is option b. Cash received by an employee from an employer is not taxable unless the payor is legally obligated to make the payment.

For example, if an employer gives an employee a gift or a bonus that is not required by the employment contract, it would not be considered taxable income. However, if the employer is legally obligated to provide the payment, such as a regular salary or wages, then it would be included in the employee's gross income and subject to taxation.