Chapter 4, Problem 1SSQ

To determine

Identify the employee compensation items that are not subject to the withholdings.

Explanation of Solution

Income tax withholding: Under federal law, the employer is required to withhold a certain amount from the total earnings of the employer. The amounts that are withheld by the employer are applied to the payment of the employee’s federal income tax.

Following are the items of employee compensation that are not subject to the withholdings:

1. Meals that are provided to the employees by the employer for delaying the work and making the employer work in the premises are not subject to withholdings as working compensation fringes and they fall under the category of non-taxable fringe benefits.

3. Usage of on-premises athletic facilities (work- out room) to the employees are not subject to the withholdings as they are a part of non-taxable fringe benefits.

4.When advance is provided to the salesperson (employees) for the overnight sales call that are made out of town are not subject to withholding. It is considered as a business expenses that is provided to an employee in advance that has a likelihood of  being probable.

7. Meals provided by the employer in local restaurant are not subject to any withholdings as there is no additional cost added to the employees for the service provided by the employer and they fall under the category of non-taxable fringe benefits.