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Adjusted gross income
gross income (all income from whatever sources) minus adjustments to income
Defined-benefit plans
the employer specifies an amount of benefits promised to the employee
Defined-contribution plans
focus on contributions rather than on the benefits they will pay out
IRS
Internal Revenue Service: a U.S. Government agency responsible for collecting of taxes, and enforcement of the Internal Revenue Code
Tax deductible
a qualified expense that may reduce the amount of income subject to taxation
Tax exempt
not subject to taxation
Taxable
subject to taxation
Noncontributory
employer pays entire cost; benefits part of employee's gross income and taxed income
Fully contributory
employee pays entire cost; benefits received tax free by employee
Partially contributory
cost shared by employer and employee; portion paid by employee is received tax free and portion paid by employer is part of employee's gross income and taxed as ordinary income
Long-term care
premiums are deductible; daily benefits that do not exceed costs are tax free; excess costs are taxed
Accidental death and dismemberment
policies are deductible to employer; benefits are tax free
Medical and dental expense
employer premiums are deductible; premium by the employee is not deductible
Key Person
Premium not tax deductible to business
Benefits tax free by business
Buy-sell agreement
Premiums not deductible to business
Benefits tax free by business
How are benefits received by the business from a key person disability insurance?
Income tax free
How are the benefits of group accidental death and dismemberment policy received?
Income tax free
Under a fully contributory health plan, how are benefits received by the employee?
Income tax free
Under what employer-provided plan are the benefits taxable to an employee in proportion to the amount of premium paid by the employer?
Disability income
What is the tax advantage of the employer paying premiums for its employees for disability income insurance?
Premiums are deductible as a business expense
How are individually-owned disability income benefits taxed once received by the insured?
Disability benefits are not taxed; they are received income tax free
In order to be eligible for coverage by an HSA, an individual must also be covered by what type of health plan?
High Deductible Health Plan (HDHP)
How long do short-term disability group plans pay benefits?
For a period of less than 2 years
How are excess funds in an employee's health savings account (HSA) handled?
The funds can be carried forward to the next year
What are the tax implications for employer contributions to Health Reimbursement Accounts?
Employer contributions are tax deductible as business expenses
In group medical and dental expense insurance, what percentage of premium paid by the employer is deductible as a business expense?
100%
To be eligible for a Health Savings Account, an individual must be covered by a
High-deductible health plan
Which of the following statements about HRAs is TRUE?
The account allows roll-over of unused balances at the end of the year at the employer’s discretion
Employers can reduce health plan costs by coupling a Health Reimbursement Account (HRA) with
A high deductible health plan
Assuming that all of the following people are covered by a High Deductible Health Plan and are not claimed as dependents on anyone’s tax returns, which would NOT be eligible for a Health Savings Account?
Amanda is 67 and is covered by a basic medical expense policy
The limits of a health reimbursement account are set by
The employer
Who determines the eligibility and contribution limits in a HRA
The employer determines both
An insured had $500 left in his Health Reimbursement Account when he quit his job. What happens to that money?
The insured can have access to the $500 at his previous employer’s discretion
What is a penalty tax for nonqualified distributions from a health savings account?
20%
An insured is the recipient of an Accidental Death and Dismemberment (AD&D) policy purchased by his employer. The policy pays triple indemnity in case of accidental death. If the insured died as a result of an accident stipulated in the policy, how will the benefits paid be taxed?
Benefits received are considered income tax free
Individuals who itemize deductions can claim deductions for medical expenses not covered by health insurance that exceed what percent of their adjusted gross income?
7.5%
A noncontributory group disability income plan has a 30-day elimination period and offers benefits of $2,000 a month. If an employee is unable to work for 7 months due to a covered disability, the employee will receive
$12,000, all of which is taxable
Group disability income insurance premiums paid by the employer are
Deductible by the employer as an ordinary business expense
The annual contribution limit of a Dependent Care Flexible Spending Account is set by
IRS
What are the 2 types of Flexible Spending Accounts?
Health Care Accounts and Dependent Care Accounts