Bonnie's employer provides her with an annual dinner club membership costing $5,000.Her marginal tax rate is 25 percent. Her employer has a marginal tax rate of 35 percent. What is Bonnie's after-tax benefit?

Question

Quizplus · Accepted Answer

Bonnie's after-tax benefit can be calculated as follows: 
1. First find out how much her employer pays for the dinner club membership after tax: 
$5,000 x (1 - 0.35) = $3,250
2. Then subtract the amount Bonnie would have to pay out of pocket after tax: 
$3,250 x (1 - 0.25) = $2,437.50
3. Finally, calculate Bonnie's after-tax benefit: 
$5,000 - $2,437.50 = $2,562.50
Therefore, the correct answer is D, $3,750 (Bonnie's after-tax benefit is $2,562.50, which is the amount she benefits from the membership after taxes).

Bonnie's Employer Provides Her with an Annual Dinner Club Membership