Question

Consider an employee who does not have health insurance and must buy her own plan. She must divide her $1,000 after-tax income between health insurance (the X-good) that costs $200/mo., and other goods (the Y-good) priced at $1.

a. Show the consumer’s initial consumption combination on a graph of her budget constraint. (Hint: She only needs 1 unit of health insurance.)

b. This employee is now offered employer-paid health insurance. Show graphically how this employee benefits from employer-paid health insurance.

c. In lieu of health insurance, the employee can opt for an add’l $100 per month in cash. Draw in the appropriate budget constraint for this option.

d. It is possible for this employee to be better off with the $100 cash if she is already covered under her spouse’s health insurance? Show how on the same graph you used to answer the other questions.

Answer 1

This time of 12 months, taxpayers are bombarded with advice about maximizing deductions to shrink tax expenses. Through now, most of us understand that we will donate to charity, repay medical expenditures, and pre-pay our loan curiosity to lift deductions. But what if as an alternative of focusing on increasing deductions, taxpayers checked out ways to curb taxable income? In other words: what might you put on your pocket and not be taxed?

Taxable income is outlined at 26 USC §sixty three as gross income much less deductions. Gross sales is outlined at 26 USC §sixty one as "all sales from whatever supply derived." That sounds lovely inclusive, correct? Except that the Tax Code goes on to exclude a quantity of objects. Here are 50 sources of cash and advantages that are not taxable for federal earnings tax purposes:

1. Gifts and inheritances. Most of the time, property you acquire as a gift, bequest, or inheritance isn't integrated on your sales.

2. Funds from GoFundMe and different fundraising campaigns. Assuming there is no industry reason or other non-donative intent, dollars acquired by using fundraising campaigns like GoFundMe will not be taxable. The donations can be viewed presents: there�s no consideration given in return, no offerings rendered, no products being touted (there are not any premiums for donations - and it would not fit the crowdfunding for industry mannequin). The effect can also be extraordinary when crowdfunding is used for industry or investment functions.

3. Baby help repayments. While alimony is tax deductible to the payor and taxable to the recipient, child support is fully tax neutral meaning that there isn't any deduction to the payor and it is now not taxable to the recipient.

Four. Sale of your residence. You can exclude the obtain from the sale of your house - up to $250,000 for single taxpayers and $500,000 for married taxpayers - so long as you have got owned and lived in the residence for two of the 5 years earlier than sale.

5. Short time period condominium sales. When you hire out your private dwelling for fewer than 15 days in a yr, you do not file any of the condominium sales for federal tax purposes (nor do you deduct any bills as apartment charges).

6. Kiddie income. The overall rule for children and different dependents is that if earnings is earned (earnings or wages via full- or phase-time employment), it is taxed at the little one's tax price this means that that sales underneath the submitting threshold just isn't taxable. For 2017, the threshold for the kiddie tax - that means the amount of unearned web revenue that a child can take home without paying any federal earnings tax - is $1,050.

7. Wellbeing care insurance. Health coverage advantages, including premiums paid to your behalf by using your enterprise, are usually not taxable to you - even though they're reportable for your type W-2.

8. Long-time period well being care coverage. As with wellness insurance, organization-furnished long-time period wellbeing care insurance (meaning that your organization is paying the premiums) just isn't taxable.

9. Elegant care advantages. Advantages which might be less than $5,000 and are paid in your behalf under a elegant care help program as part of a certified plan are considered non-taxable benefits.

10. Wellness savings bills (HSA). In case you are an eligible individual, you and any other person, together with your enterprise or a loved ones member, can make a contribution to your HSA; these contributions made by using your corporation aren't incorporated in your revenue. Additionally, when you take the money out to pay certified clinical expenses, it is not included on your income.

Eleven. Worker fulfillment award. If you happen to receive tangible individual property - as a rule, a thing that you would be able to contact like cufflinks or the dreaded grandfather clock - as an award for size of service or security achievement, you regularly can exclude its worth from your income. The quantity that you could exclude is constrained to your corporation's price and cannot be more than $1,600 for the entire yr. Your supplier have got to make the award as a part of (and i'm not making this up) a significant presentation so that it does not simply appear like disguised pay. And sure, it has to be tangible individual property to be excluded on account that money, a reward certificate, or an similar item are taxable, although given for the equal motive as you received a lovely painted ceramic dog.

12. Deferred compensation and retirement plans. That is kind of a trick on my part in view that these plans aren't a lot exempt as they're deferred. Your enterprise will report back to you the total quantity of deferrals for the year beneath a deferred compensation plan; that amount is normally now not incorporated on your sales except you are making a withdrawal. This may include plans like IRAs and 401(ok)s. Bonus? Which you can make a contribution to an IRA correct up until Tax Day, and you could contribute to a ordinary or Roth IRA whether or not or no longer you take part in a different retirement plan via your organisation or industry.

Thirteen. Unwell pay advantages from special coverage insurance policies. If you're ailing or injured and you acquire compensation from your employer, that is taxable, as are cash from a welfare fund; a state illness or incapacity fund; an organization of employers or staff; and an coverage organization, in case your supplier paid for the plan. Nonetheless, should you paid the premiums on an accident or wellness insurance policy, the benefits you receive below the coverage usually are not taxable.