The Federal tax code allows businesses but not individuals to deduct the cost of

Question

The Federal tax code allows businesses but not individuals to deduct the cost of health insurance premiums from their taxable income. Consider a company named HeadBook that could either spend $10,000 on an insurance policy for an employee named Vanessa or could increase her annual salary by $10,000 instead.

a. As far as the tax code is concerned, HeadBook will increase its expenses by $10,000 in either case. If it pays for the policy, it incurs a $10,000 health care expense. If it raises Vanessa

Explanation / Answer

a) if headbook pays for the policy i.e health insurance, it will pay 0.3*10,000 = $3000 less in taxes

b)15% of the increment shoul be paid as taxes, remaining = 85% 0f 10,000 = 0.85*10000 = $8500

she will be able to spend $8500 on health insurance

c)headbook spends $10,000, where as venessa spends = $8500, therefore headbook spends $1500 more than venessa

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