Question

Tanya's employer offers a cafeteria plan that allows employees to choose among a number of benefits. Each employee is allowed $6,000 in benefits. For 2013, Tanya selected $3,000 of parking, $2,000 in 401(k) contributions, and $1,000 of cash. How much must Tanya include in taxable income?

A. $60.
B. $1,000.
C. $1,060.
D. $4,000.

Answer 1

Tanya must include $1,000 in taxable income from her employer's cafeteria plan, as cash is typically treated as taxable income, unlike pre-tax benefits such as parking and 401(k) contributions.

Step-by-step explanation:

The question involves Tanya's taxable income from her employer's cafeteria plan. Each element of the plan that Tanya selects has different tax implications. The parking benefits and 401(k) contributions are typically pre-tax benefits, meaning they would not be included in her taxable income (assuming the parking benefit does not exceed the IRS limit for the tax year). However, the $1,000 of cash is treated as taxable income.

Therefore, the correct answer to the question "How much must Tanya include in taxable income?" is B. $1,000.