Lara,a single taxpayer with a 30 percent marginal tax rate,desires health insurance.The health insurance would cost Lara $5,000 to purchase if she pays for it herself (Lara's AGI is too high to receive any tax deduction for the insurance as a medical expense) .Lara's employer has a 40 percent marginal tax rate.Ignoring payroll taxes,what is the maximum amount of before-tax salary Lara would give up to receive health insurance?

Question

Quizplus · Accepted Answer

Since Lara's employer has a higher marginal tax rate, it is more tax efficient for her to receive health insurance as a fringe benefit. The maximum amount of before-tax salary she would give up is calculated as follows:
$5,000 / (1 - 0.4) = $8,333.33
Therefore, the correct answer is (C) $7,143, rounded to the nearest dollar.

Lara,a Single Taxpayer with a 30 Percent Marginal Tax Rate,desires