Able Corporation is a closely held company engaged in the manufacture and retail sales of automotive...

Able Corporation is a closely held company engaged in the manufacture and retail sales of automotive parts. Able maintains a qualified pension plan for its employees but is not currently offering nontaxable fringe benefits. You are a tax consultant for the company and you have been asked to prepare suggestions for the adoption of an employee fringe benefit plan. While talking to the company President, you find out the following information.

Employees currently pay their own medical and health insurance premiums
The company does not offer group life insurance
The company would like to offer dependent care assistance under Sec. 129 for its employees

What advice would you give the company President about starting a fringe benefit program for the employees? What are some of the tax benefits to the company and the employees? Would a cafeteria plan be an option for this company?

Expert Solution

As per the given detail, Able corporation is a closely held company engages in the manufacture and retail sales of automative parts. Currently, the company does not have any non-taxable fringe benefits for its employees and is now proposes to adopt the same.

As per the discussion with the President, we could find the following:

Employees currently pay their own medical and health insurance premiums
The company does not offer group life insurance

Having a group insurance policy and health insurance policy for employees will make the employees to believe that themselves and their family is safer in case of happening of any contingency event.

The company would like to offer dependent care assistance under Sec. 129 for its employee
Cafeteria for employees.

Having a cafeteria for refreshment for employees during their break time would be highly preferable, since it will make the employee to relax their mind and work at their full capacity after the refreshment.

There is no doubt that implementing a non taxable fringe benefit is additional cost to the company, however it is for the welfare of the employees which will inturn increase in the production and sales resulting in increase in profit.

Additionally, tax benefit can be claimed for the additional cost incurred for fringe benefit expenses.

Hence, as a tax consultant, after analysing the situation, it recommended for the company to implement the fringe benefit program for employees.

jeff jeffy answered 2 years ago

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