Question

June is a cash basis taxpayer, and is a fashion and makeup consultant in a high fashion company, Curlylocks, Inc. She earned a salary of $60,000. She also was provided a disability income protection policy for which Curlylocks paid a $1,500 premium for June's insurance. The company also provided health insurance for her which cost the company $15,000, and long term care insurance for her which Curlylocks paid a $1,000 premium. Her salary would have been $65,000, but she was paying off her school loan at $5,000/year and Curlylocks agreed to reduce her salary by $5,000 and to pay $5,000/year amount toward her school loan for her. The long-term care insurance policy was provided for all employees, to help to pay for future nursing home costs if needed, the health care and disability insurance were likewise provided for all. While her salary was $60,000, Curlylocks Inc. had a 401(k) plan and June voluntarily put $3,000 of her $60,000 salary, 5% of it, into her 401(k). Her employer Curlylocks matched that with a $3,000 contribution of its own money into her 401(k). What is June's taxable income from Curlylocks this year?June is a cash basis taxpayer, and is a fashion and makeup consultant in a high fashion company, Curlylocks, Inc. She earned a salary of $60,000. She also was provided a disability income protection policy for which Curlylocks paid a $1,500 premium for June's insurance. The company also provided health insurance for her which cost the company $15,000, and long term care insurance for her which Curlylocks paid a $1,000 premium. Her salary would have been $65,000, but she was paying off her school loan at $5,000/year and Curlylocks agreed to reduce her salary by $5,000 and to pay $5,000/year amount toward her school loan for her. The long-term care insurance policy was provided for all employees, to help to pay for future nursing home costs if needed, the health care and disability insurance were likewise provided for all. While her salary was $60,000, Curlylocks Inc. had a 401(k) plan and June voluntarily put $3,000 of her $60,000 salary, 5% of it, into her 401(k). Her employer Curlylocks matched that with a $3,000 contribution of its own money into her 401(k). What is June's taxable income from Curlylocks this year?

Answer 1

Ans : June's Taxable Income from CurlyLocks this year is $65,000

Taxable Salary Income	Amount	Basis
Salary	65,000.00	(60000+5000)

Following are the comments in line for each component on tax treatment and suitable assumptions :

Component	Amount in USD	Remarks
salary	60,000	Taxable
disability income protection policy insurance	1,500	In this case option is available how insured would like to pay it pre-tax or post-tax. Pre-tax means it will not be considered as taxable benefit in such case any benefit received will be taxable subsequently. In case it is post-tax payment, the benefit received will not be taxable. In absence of information it is assumed that it is pre-tax hence not taxable in the hands of employee
health insurance	15,000	Health Insurance payment paid by employer is not taxable
long term care insurance	1,000	provided for all employees, to help to pay for future nursing home costs if needed. When an employer pays the premium for qualified long term care coverage for its employees, the employer should be able to deduct those premiums as an ordinary and necessary business expense to the same extent that it can deduct premiums paid for other accident and health insurance covering its employees (IRC Section 162)
school loan	5,000	First of all it's the obligation of employee hence it is taxable. School Loan interest is deductible upt o $2,500 however bifurcation is not available hence it is assumed no portion belongs to interest hence not deductible
Employee 401K Contribution	3000	Employee 401K contribution is deductible from taxable Income
Employer 401K Contribution	3,000	Employer matched contribution to 401K is not taxable