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21 February, 10:42

The plant union is negotiating with the Eagle Company, which is on the verge of bankruptcy. Eagle has offered to pay for the employees' hospitaliztion insurance in exchange for a wage reduction. The employees each currently pay premiums of $4,000 a year for their insurance. Which of the following is correct:

a. If an employee's wages are reduced by $5,000 and the employee is in the 28% marginal tax bracket, the employee would benefit from the offer.

b. If an employee's wages are reduced by $4,000 and the employee is in the 15% marginal tax bracket, the employee would benefit from the offer.

c. If an employee's wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer.

d. a., b., and c.

e. None of these.

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  1. 21 February, 13:39
    0
    d. a., b., and c.

    Explanation:

    Reduction in pay (a) Marginal tax (b) Reduction in tax (c = a x b)

    A. $5000 0.28 $1,400

    B. $4000 0.15 $600

    C. $6000 0.35 $2100

    Reduction in After-tax Income (d = a - c)

    A. $3,600

    B. $3,400

    C. $3,900

    this means that all the above a, b, and c options are correct because in all the three cases, the reduction in after-tax pay of the employee will be less than $4000 value of the nontaxable insurance premium to be paid by the employer which would ultimately benefit the employee.
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