Under Swan Company's Cafeteria Plan, All Full-Time Employees Are Allowed

question 69

Multiple Choice

Under Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the following benefits, but the total received by each employee cannot exceed $8,000 a year.
I.Group medical and hospitalization insurance for the employee, $3,600 a year.
II.Group medical and hospitalization insurance for the employee's spouse and children,
$1,200 a year.
III.Child care payments, actual cost but not more than $4,800 a year.IV.Cash required to bring the total of benefits and cash to $8,000.
Which of the following statements is true?

• A)Sam, a full-time employee, selects choices II and III and $2,000 cash.His gross income must include the $2,000.
• B)Paul, a full-time employee, elects to receive $8,000 cash because his wife's employer provides these same insurance benefits, which would cover him (II).Paul is not required to include the $8,000 in gross income.
• C)Sue, a full-time employee, elects to receive choices I, II, and $3,200 for III.Sue is required to include $3,200 in gross income.
• D)All of these.
• E)None of these.

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Definitions:

Inelastic Demand

A market condition where the demand for a product does not change significantly with a change in its price.

Elastic Supply

A scenario in which the amount of a product available for sale markedly changes in response to its price adjustments.

Social Security Tax

A tax levied on both employers and employees to fund the Social Security program, which provides benefits to retirees, disabled workers, and survivors of deceased workers.

Withholding Rate

The percentage of an employee's income that an employer holds back for tax purposes before paying the employee.