Answer the following statements true (T) or false (F)

Question

1. In the case of foreign-earned income, U.S. citizens may avoid double taxation of income by both the United States and the host country by utilizing a foreign tax credit or by electing the foreign earned income exclusion.
2. Kelly was sent by her employer to work on a special assignment in Paris for six months. Kelly will be able to exclude some of her income earned in Paris.
3. The tax law encourages certain forms of fringe benefits by allowing employees to deduct the value of the benefit from gross income and allowing employers to exclude the cost.
4. Felice is in the hotel management field. She rents an apartment near the hotel so she can walk to work. She pays $1,000 per month for rent. Felice has just been offered a similar position at a different hotel. The salary will be $14,000 lower, but they do require she live in the hotel to be on call and provide her with suite to live in. Felice has a marginal tax rate of 32%. She will be financially ahead by accepting the new position.
5. Employers must report the value of nontaxable meals and lodging provided to employees on the employees' W-2s at year-end.

Answer 1

1. TRUE
A choice between an earned income exclusion or a foreign tax credit is allowed a U.S. citizen working in a foreign country who satisfies a physical presence test.
2. FALSE
Because she is only working outside the United States for six months, she will not satisfy the 330-day requirement.
3. FALSE
Employees exclude the value of the benefit from their gross income, and employers deduct the cost paid for the benefit.
4. TRUE
The $9,380 decrease in her after-tax salary is less than the $12,000 she currently pays in rent. [$14,000 * (1 - .32) = $9,520]
5. FALSE
In general, if a fringe benefit is nontaxable, employers do not withhold from the benefit or report it on the W-2.