All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums ($8,000 for each employee).None of the employees has sufficient medical expenses to deduct the premiums.Instead of giving raises next year, United is considering paying the employee's hospitalization insurance premiums.If the change is made, the employee's after-tax and insurance pay will:

Question

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The higher income employees will benefit more from the change because they are in a higher marginal tax bracket. The premiums are not deductible, so the employees are effectively paying taxes on the premiums. If the company pays the premiums, the employees will no longer have to pay taxes on the premiums, which will result in a greater increase in their after-tax pay.

All Employees of United Company Are Covered by a Group