Question

Armando, a manager for Petros Pizza Pies (PPP), dies in an accident on July 12. PPP pays his wife, Penelope, $600 in salary that had accrued before Armando died. Armando was covered by a $90,000 group term life insurance policy, which is also paid to Penelope. In addition, the board of directors of PPP authorizes payment of $6,000 to Penelope and $4,000 to their child in recognition of Armando's years of loyal service and contributions to the success of the company. What are the tax consequences of the payments to Penelope and her child?

Answer 1

Step-by-step explanation:

Ms. P receives $6,000 from Company P due to her husband A's loyal service and She receives $600 that her husband earned prior to his death. Hence, Ms P earns a total of $6,600 ($6000 + $600) gross income.

The amount of $90,000 receive from the life insurance proceeds are excluded from the gross income.

Ms P's daughter receives $4,000 from company P. It should be included in her daughter income.