Masonry Magazine June 1973 Page. 14
Taxes
(Continued from page 13)
WITHHOLDING EXEMPTION
With vacation time now here and with it the increase in part-time and temporary help, employers and employees alike should remember that they may file for an exemption to federal withholding. Anyone who did not have to pay income tax for the previous year and who does not expect to have to pay income tax for the current year may file for the exemption. The form to use is W-4E.
The IRS advises that those eligible for this exemption will be found in one of three categories: 1) single persons with an annual gross income for both the previous year and the current year of less than $2,050 ($2,800 if 65 or older); 2) married individuals entitled to file jointly with a combined income of less than $2,800 ($3,550 if one is 65 or older or $4,300 if both are 65 or older) for each of the two years and 3) individuals with unearned income (such as interest or dividends) who may be claimed as a dependent by another taxpayer but have a gross income of less than $750.
Forms and information on this withholding exemption are available at all IRS offices. (IRS News Rel. IR-1306.)
GROUP-TERM LIFE INSURANCE
Under a group-term life insurance plan, an employer furnished its employees with a maximum protection of $50,000. However, the employer also made available to those employees who were covered with the maximum of $50,000 of insurance, additional group-term life insurance. The cost of this additional insurance is shared by both the employees and the employer.
A question arose as to the taxation of that portion of the additional insurance that is paid for by the employer under the following circumstances: An employee elected to purchase the additional insurance made available by the employer. Subsequently, the taxpayer-employce made an irrevocable assignment of all his rights under the foregoing insurance. Part of the agreement was that the assignee would take over the payments due on the insurance by the employee.
Does the employee who has assigned his rights in the insurance policy have to report as income that portion that his employer must pay on the cost of the insurance that exceeds the sum of $50,000?
It continued to be income to the employee, said the IRS. In quoting the U.S. Supreme Court, the IRS said: "The power to dispose of income is the equivalent of ownership of it. The exercise of that power to procure the payment of income to another is the enjoyment and, hence, the realization of the income by him who exercises it." In other words, this employee was receiving income even though he had sort of "sold" his right to receive it.
Therefore, the IRS ruled that the cost of the insurance paid by the employer that exceeds the cost of $50,000 of such insurance is includible in the taxpayer's gross income, notwithstanding the taxpayer's assignment of his rights under the insurance. (Rev. Rul. 73-174.)
EMPLOYEE PLAN
The IRS was recently asked to rule on the consequence of interference by Pay Board Regulations with the formula of an established profit-sharing plan of a corporation. The corporation maintained a profit-sharing plan that provided for an annual contribution of the lesser of 10% of the corporation's net profits or 15% of the total compensation of all participants for the year. Although it had for some years contributed 15% of the participants' compensation, low profits in 1969, 1970 and 1971 caused the plan contributions to be less than 5%.
Then in 1972, things were looking better for the corporation and as their profits went up so returned their plan liability of 15% of the participants total compensation. However, the corporation in fact contributed less than 5% of the compensation paid in 1972 because other compensation increases, in the maximum amount permitted by section 201.59 of the Pay Board Regulations, had already been paid for that control year. The corporation would have violated the Pay Board's Regulations had it contributed any more than it did to the profit-sharing plan.
It was the opinion of the IRS that the reduced compensation did not adversely affect the qualification of this profit-sharing plan. The essential attributes of contributions were maintained. The contributions to the plan were recurring and substantial, and were not made in such amounts so that the plan discriminated in favor of the highly compensated group. (T.I.R. No. 1238.)
PEDESTRIAN MALL
In an effort to revitalize its downtown commercial business section, a city converted a street in that area that was already improved by lights, sidewalks, sewers, etc., into an (Continued on page 38)