Question

Suppose that a worker received $62,000 in wage at a job that also provides health insurance. A health insurance policy costs $8,500. The employee is considering moving to a job without health insurance, so she would have to purchase health insurance on her own. (Prices would still be the same, $8,500). Suppose she is in the 15% tax bracket at both jobs. At least how much in salary would the new job have to offer to compensate her for the loss in tax benefit when she moves to the new job? Show all work to justify the answer.

Answer 1

Given that:

Earlier :

she received gross salary of $62000 along with an insurance benefit of $8500 .Thus her in hand salary was = $62000 on which tax of 15% was to be given.

Thus the tax amount she pays = $62000×15% = $9300.

Therefore her net salary in her hand is (gross salary-tax) =$62000-$9300 =$52700

Now :

To find= how much salary she should get ?

She is to receive a salary which must not be less than her previous net salary (which is $52700)

Also she wont get the health insurance benefit. Thus her salary must include that expense of her too. Thus she must have net salary of =$52700+$8500= $61200 after all her tax deductions.

As tax is 15% , therefore the net salary is of 85% value.

Thus to get the gross salary ( salary she must get from her employer) = net salary ÷ 85 ×100

= $61200÷85×100 = $72000.

Ans = $72000 must be paid by her employer to her.

Note : tax is calculated on the salary received from the employeer excluding all benefits like health insurance is any.