Tim earns a salary of $40,000.This year,Tim's employer establishes a cafeteria plan under which Tim signed a salary reduction of $2,500 for which $1,500 is to cover his health insurance premiums and $1,000 is available to reimburse medical expenses.During the year,he is reimbursed $900 for medical expenses.What is the total taxable to Tim this year?

Question

Quizplus · Accepted Answer

The salary reduction of $2,500 is not included in Tim's taxable income. The $1,500 used to cover health insurance premiums is also not taxable. The $1,000 available to reimburse medical expenses is not taxable until it is actually used. Since Tim was only reimbursed $900 for medical expenses, only $900 is taxable. Therefore, Tim's total taxable income is $40,000 - $2,500 - $1,500 - $900 = $37,500.

Tim Earns a Salary of $40,000