Question

The Sage Company has the opportunity to purchase a building located next to its office. Sage would use the building as a day care center for the children of its employees and an exercise facility for the employees. Occasionally, portions of the building could be used for employees' family events such as reunions, birthday parties, and anniversaries.

The company would like to know if the planned uses of the building would fit into a beneficially taxed employee compensation plan. Complete the statement below regarding this potential employee fringe benefit.

The employee does not have to include in gross income the value of ___ paid for by the employer. The exclusion cannot exceed $___ per ___. For a married couple, the annual exclusion cannot exceed ___of the spouse who has the lesser amount of ___. For an unmarried taxpayer, the exclusion cannot exceed the taxpayer's ___.

The value of ___by employees, their spouses, and their dependent children ___ be excluded from an employee's ___. The facility ___ on the employer's premises, and ___ of the facility must be by employees and their family members.

Answer 1

The employee does not have to include in gross income the value of CHILD AND DEPENDENT CARE SERVICES paid for by the employer. The exclusion cannot exceed $5,000 per YEAR. For a married couple, the annual exclusion cannot exceed EARNED INCOME of the spouse who has the lesser amount of EARNED INCOME. For an unmarried taxpayer, the exclusion cannot exceed the taxpayer's EARNED INCOME.

The value of THE USE OF A GYMNASIUM OR OTHER ATHLETIC FACILITY by employees, their spouses, and their dependent children MAY be excluded from an employee's GROSS INCOME. The facility MUST BE on the employer's premises, and SUBSTANTIALLY ALL OF THE USE of the facility must be by employees and their family members.

Step-by-step explanation:

Google started the fad of giving employees great perks, and now many companies are following. It is a great way of improving employees' motivation and overall performance.

The problem is that they are not always cheap, and the company must be very careful so that they can deduct the largest portion as business expenses. Generally perks that are not included in the employees' gross income can be deducted by the employer, but there is no absolute rule that applies to all perks. E.g. free meals at work can be deducted by the company, but other fringe benefits like company cars result in higher gross income taxes.

In this case, the company must be very careful to specifically limit how and by whom can the new building be used. This way, it can deduct from its own expenses the largest portion of the costs, so that the benefits received by the employees are maximized.