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 the after-tax cost of the membership to her employer ($5,000 * (1 - 0.35) = $3,250) minus the after-tax cost to Bonnie herself ($5,000 * (1 - 0.25) = $3,750). Therefore, her after-tax benefit is $3,250 - $3,750 = -$500, which means that she is worse off after receiving the membership.

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