Gordon's family health insurance costs $6,000 annually. Gordon and his wife are in the 24% 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

If Gordon takes advantage of the cafeteria plan, he will pay for the insurance premiums with pre-tax dollars, which means his taxable income will decrease by $6,000. 
Thus, the amount of tax he saves is: 
$6,000 x 24% = $1,440 
Therefore, the effective cost of the insurance coverage is: 
$6,000 - $1,440 = $4,560. 
Therefore, the best choice is (C).

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