Part 1: What is the taxpayer’s gross income in each of the following situations?
ID: 2489854 • Letter: P
Question
Part 1: What is the taxpayer’s gross income in each of the following situations? Darrin received a salary of $50,000 in 2013 from his employer, Green Construction. In July 2013, Green gave Darrin an all-expense-paid trip to Las Vegas (value of $3,000) for exceeding his sales quota. Megan received $10,000 from her employer to help her pay medical expenses not covered by insurance. Blake received $15,000 from his deceased wife’s employer “to help him in his time of greatest need.” Clint collected $50,000 as the beneficiary of a group term life insurance policy when his wife died. The premiums on the policy were paid by his deceased wife’s employer. Peggy won $4000 in the state lottery.
Explanation / Answer
Taxpayer's gross Income is as follows in following cases :
-Salary = $50,000-Taxable as income is earned.
-Paid Trip= $3,000-Taxable as this perk was not related to business, it was given on achieving sales target, so it becomes part of income of darrin.
-Gross Total Income=$50,000+$3,000= $53,000
2. In case of Megan
-Amount received by employee from employer as medical reimbursement is not taxable in hands of employee provided their exists prior agreement between them.
In given case, information on prior agreement is missing, im assuming that no prior agreement exists, so the amount of $10,000 received by Megan is Taxable, hence includible in her gross total income.
3.In case of Blake:
As per the general rule, amount upto $5,000 paid to the beneficiary of employee on behalf of employee on account of death of employee, is EXCLUDED from gross income of recipietent.
In given case, since amount received is greater than $5,000, excess amount will be included in gross income, i.e. $15,000-$5,000= $10,000.
4 In case of Clint
Amount recieved under life insurance policy on death of wife is EXCLUDED from gross income, irrespective of fact that premium on policy is paid by deceased wife’s employer..
So amount of $50,000 will not be included in gross income of clint.
5. In case of Peggy
Amount won under state lottery is taxable in hands of recipient, hence amount of $4,000 received by peggy is Includible in gross income.