Gordon's family health insurance costs $6,000 annually.Gordon and his wife are in the 28% marginal tax rate bracket.His employer offers a cafeteria plan that would allow him to cover the insurance premium.How much would the insurance coverage effectively cost if he took advantage of his employer's cafeteria plan?

Question

Quizplus · Accepted Answer

By using the cafeteria plan, Gordon can pay the premium with pre-tax dollars, effectively reducing his taxable income by $6,000. Therefore, he would save 28% on the $6,000 premium, which is $1,680. This means that the insurance coverage would effectively cost him $6,000 - $1,680 = $4,320.

Gordon's Family Health Insurance Costs $6,000 Annually