ch 12 gottlieb tax

Flashcards focusing on vocabulary terms related to compensation and its tax implications.

Tax implications

The effects on tax liabilities that various compensation forms, like salary and benefits, hold for both employees and employers.

Form W-4

A tax form that employees complete to determine the amount of tax withholding from their paycheck.

Ordinary income

Income earned from providing services or selling goods that is subject to regular income tax treatment.

Form W-2

A form that summarizes an employee's taxable salary and wages and provides withholding information.

Fringe benefits

Noncash benefits provided to employees, which can be taxable or nontaxable.

Employee Considerations

Factors employees need to evaluate regarding salary and wage implications, benefits, and tax liabilities.

After-tax cost of salary

The actual cost to an employer after accounting for applicable taxes associated with employee salary.

Nonqualified stock options (NQOs)

Stock options that do not meet IRS requirements for favorable tax treatment.

Incentive stock options (ISOs)

Stock options that qualify for favorable tax treatment under specific IRS rules.

Bargain element

The difference between the fair market value of stock and the exercise price on the exercise date.

Vesting date

The date on which employees gain the right to exercise their granted stock options.

Taxable fringe benefits

Benefits received by employees that are recognized as income and subject to income tax.

83(b) election

A tax election that allows an employee to recognize income on the grant date for restricted stock.

Restricted stock

Shares awarded to employees that cannot be sold until certain conditions are met.

Nontaxable fringe benefits

Benefits exempt from tax under specific statutory provisions, such as group-term life insurance.

Health insurance benefits

Employer-paid premiums for health insurance, generally excluded from employees' taxable income.

Dependent care benefits

Employer-provided benefits for childcare expenses, subject to tax exclusions.

Group-term life insurance

Life insurance provided by employers up to $50,000 that is not taxable to employees.

Flexible Spending Accounts (FSAs)

Accounts that allow employees to use pretax income for qualified health or dependent care expenses.

Tax Planning with Fringe Benefits

Strategies employers can use to structure benefits in a tax-efficient manner.