Question

Suppose that there is a flat 20% income tax rate, but otherwise U.S. tax law is...

Suppose that there is a flat 20% income tax rate, but otherwise U.S. tax law is the same as that in place. You make $40,000 per year. If your employer pays for your $4,000 per year insurance policy and deducts the expense from your salary, your after-tax, after-insurance take-home pay is _____. If you pay for your $4,000 per year policy directly, your after-tax, after-insurance take-home pay is _____.

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Answer #1

1) your employer pays for your $4,000 per year insurance policy and deducts the expense from your salary, your after-tax, after-insurance take-home pay is

Ans: $ 28,800

working:

Salary $40,000
Deduction of insurance policy from salary ($4000)
AGI $36,000
Less: Tax @ 20% ($7200)
Take Home Net Pay $ 28800

2) you pay for your $4,000 per year policy directly, your after-tax, after-insurance take-home pay is

Ans: $ 28,000

working:

Salary $40,000
Less: Tax @ 20% ($8000)
Salary in hand $32,000
Less: Payment of policy from own pocket ($4000)
Take home net pay $28,000
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