[Anonymous]

Hi Everyone,

I have my exam in a few hours and I am trying to cram in everything I didn’t get a chance to go through as yet. Could someone please help me to understand why (c) is correct for this question? Can’t figure out the math.

Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also received, as a fringe benefit, group term-life insurance at twice Johnson’s salary. The annual IRS-established uniform cost of insurance is $2.76 per $1,000. What amount must Johnson include in gross income?

a. $100,000

b. $100,276

c. $100,414

d. $100,552

Explanation

Choice “c” is correct.

[J]

Weird question, to be honest.

You just have to remember that the first $50,000 of group term life insurance is excluded from gross income. In this problem, you are being told that Johnson has a salary of $100,000 and he is receiving a benefit of life insurance at twice that amount, so $200,000. Then, you are told that the standard IRS cost is $2.76 per $1,000 of coverage. The problem then boils down to calculating out the total cost of insurance and then the amounts are excluded/included in gross income:

Total benefit: $200,000 / $1,000 = 200 * $2.76 = $552

Excluded benefit: $50,000 / $1,000 = 50 * $2.76 = $138

Included benefit: $552 – $138 = $414 (or $150,000 / $1,000 = 150 * $2.76 = $414)

[Anonymous]

Oh my goodness. Thanks @InterFC1. I would have never gotten that on my own.

[Author]

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