Question

If you pay $500 in health insurance premiums through your employer as a pre-tax deduction from your monthly payroll, how much is your annual tax savings, assuming a 30% marginal tax rate? Assume that if you did not buy the benefit through your employer plan, you would have to pay the same amount for private health insurance. (Show all your work.)

Answer 1

Calculation of Annual Tax saving:
Particulars		Amount
Health Insurance Premium Pre tax deduction from monthly pay roll		$         500
Health Insurance Premium Pre tax deduction yearly		$ 6,000
Assuming a marginal Tax Rate		30%
Annual Tax Saving		$ 1,800
If did not buy the benefit through employer plan, would have to pay $ 6,000 yearly for private health insurance.