Question

JDD Corporation provides the following benefits to its employee, Ahmed (age 57): Salary $ 307,000 Health insurance 15,400 Dental insurance 4,800 Life insurance 4,200 Dependent care 4,500 Professional dues 1,400 Personal use of company jet 293,000 The life insurance is a group-term life insurance policy that provides $253,000 of coverage for Ahmed. Assuming Ahmed is subject to a marginal tax rate of 32 percent, what is his after-tax benefit of receiving each of these benefits

Answer 1

Answer:

His after-tax benefit of receiving each of these benefits are as follows:

After-tax benefits of taxable items = $410,292

Non taxable benefits:

Health insurance = $15,400

Dental insurance = $4,800

Non taxable premium = $830

Dependent care = $4,500

Professional dues = $1,400

Explanation:

Life insurance = 4,200

Group-term life insurance coverage = $253,00

Amount of premium exempted from tax by law =$50,000

Non taxable premium = (Amount of premium exempted from tax by law / Group-term life insurance coverage) * Life insurance = ($50,000 / $253,000) * 4,200 = $830

Taxable premium = Life insurance - Non taxable premium = $4,200 - $830 = $3,370

Therefore, we have:

Taxable benefits = Salary + Personal use of company jet + Taxable premium = $307,000 + $293,000 + $3,370 = $603,370

Income tax on benefits = Taxable benefits * Marginal tax rate = $603,370 * 32% = $193,078

After-tax benefits of taxable items = Taxable benefits - Income tax on benefits = $603,370 - $193,078 = $410,292

Therefore, his after-tax benefit of receiving each of these benefits are as follows:

After-tax benefits of taxable items = $410,292

Non taxable benefits:

Health insurance = $15,400

Dental insurance = $4,800

Non taxable premium = $830

Dependent care = $4,500

Professional dues = $1,400