The LMN Partnership has a group term life insurance plan. Each partner has $150,000 of protection, and each employee has protection equal to twice his or her annual salary. Employee Alice (age 32) has $90,000 of insurance under the plan, and partner Kay (age 47) has $150,000 of coverage. Because the plan is a "group plan," it is impossible to determine the cost of coverage for an individual employee or partner.
a. Assuming that the plan is nondiscriminatory, how much must Alice and Kay each include in gross income as a result of the partnership paying the insurance premiums? Assume that the uniform premiums for $1,000 of protection for one month from the IRS table is $0.08 for Alice and $0.15 for Kay. If required, enter answers to two decimal places.
Alice must include $ and Kay must include $ in gross income.
b. Assume that the partnership is incorporated. Kay becomes a shareholder and an employee who receives a $75,000 annual salary. The corporation provides Kay with $150,000 of group term life insurance coverage under a nondiscriminatory plan.
What amount is included in Kay's gross income as a result of the corporation paying the insurance premiums? Assume that the uniform premiums for $1,000 of protection for 1 month from the IRS table is $0.15 for Kay.
$
Social Security Benefits (LO. 4)
Melissa, who is 70 years old, is unmarried and has no dependents. Her annual income consists of a taxable pension of $17,000, $14,000 in Social Security benefits, and $3,000 of dividend income. She does not itemize her deductions. She is in the 15% marginal income tax bracket. She is considering getting a part-time job that would pay her $5,000 a year. The applicable two bases for Social Security computations for Melissa are $25,000 and $34,000.
a. What would be Melissa's after-tax income from the part-time job, considering Social Security and Medicare tax (use 7.65%) as well as Federal income tax on the earnings of $5,000? (Round your intermediate computations and final answer to the nearest dollar.)
$
b. What would be the effective tax rate (increase in tax/increase in income) on the additional income from the part-time job? Round to two decimal places.
%