Roger is in the 35% marginal tax bracket.Roger's employer has created a flexible spending account for medical and dental expenses that are not covered by the company's health insurance plan.Roger had his salary reduced by
$1,200 during the year for contributions to the flexible spending plan.However, Roger incurred only $1,100 in actual expenses for which he was reimbursed.Under the plan, he must forfeit the $100 unused amount.His after-tax cost of overfunding the plan is $65.

Question

Quizplus · Accepted Answer

Since Roger's marginal tax bracket is 35%, his contribution of $1,200 to the flexible spending account is tax-deductible, saving him $420 in taxes ($1,200 x 0.35 = $420). The $1,100 in actual expenses that he was reimbursed for were paid with pre-tax dollars, saving him an additional $385 in taxes ($1,100 x 0.35 = $385). Therefore, his total tax savings from using the flexible spending account is $805 ($420 + $385). However, since he forfeited $100, his actual after-tax cost of overfunding the plan is $705 ($805 - $100). Therefore, the statement is false, and Roger's after-tax cost of overfunding the plan is $705, not $65.

Roger Is in the 35% Marginal Tax Bracket