Rachel receives employer provided health insurance. the employer's cost of the health insurance is $6,800 annually. what is her employer's after-tax cost of providing the health insurance, assuming that the employer's marginal tax rate is 35 percent and is profitable?
a. $0
b. $4,420
c. $4,198
d. $6,800

$0

Explanation:

An Employee-sponsored Health Insurance within this price range is deducted as an expense and not taxed. This applies to all health coverage that cost below $10,200 for individuals and $27,500 for families. Any amount above this attracts a 40% tax levied on the excess amount (over $10,200 or $27,500).

This is Known as the Cadillac Tax. it is used to limit the amount of health coverage an employer has for employees, thereby reducing the amount an they can deduct as expense. This curbs employers from offering needlessly expensive coverage with the sole aim of reducing payable tax.

b. $4,420

Explanation:

The after-tax cost is the $6,800 outflow less the $2380 (6,800 x 35%) of income tax benefit.

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