Joe’s salary is $40,000 per year. His health insurance costs $6,000 of which $4,

Question

Joe’s salary is $40,000 per year. His health insurance costs $6,000 of which $4,000 is paid by the employer and $2,000 is paid by Joe through salary reduction. Ignoring any other taxes and benefits, which of the following statements is true about the taxation of Joe’s income and health benefits?

a.The employer will be able to deduct Joe’s salary and $6,000 health insurance premium cost as a business expense.

b.Joe will owe tax on his $40,000 income, but not on the $6,000 health insurance benefit.

c.Joe will owe tax on $34,000 because the $6,000 insurance benefit is not taxable to him.

d.Joe’s taxable income will be reduced by the $2,000 he pays in health insurance premium and he will not owe any tax on the $4,000 paid by his employer.

Explanation / Answer

option d is correct

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