Question

JDD Corporation provides the following benefits to its employee, Ahmed (age 26):

Salary	$	323,000
Health insurance		12,500
Dental insurance		3,900
Life insurance		5,400
Dependent care		4,400
Professional dues		1,380
Personal use of company jet		278,000

Assume the life insurance is a group-term life insurance policy that provides $226,000 of coverage for Ahmed. (Use EXHIBIT 12-10.)

a. Assuming Ahmed is subject to a marginal tax rate of 30 percent, what is his after-tax benefit of receiving each of these benefits (ignoring FICA taxes)? (Enter all amounts as positive values. Round your intermediate computations and final answers to the nearest whole dollar.)

Answer 1

SOLUTION

The after-tax benefit of Ahmed’s salary and benefits is $448,199, calculated as follows:

S.No.	Particulars	Amount ($)	Explanation
	Taxable Benefits
1	Salary	323,000
2	Personal use of company jet	278,000
3	Life Insurance (taxable portion)	270	($150,000 * (0.15 cents per $1,000) *12
4	Taxable Total	601,270	(1+2+3)
5	Marginal tax rate	30%
6	Income tax on benefits	180,380	(4*5)
7	After-tax benefit of taxable items	420,889	(4-6)
	Nontaxable Benefits
8	Health Insurance	12,500
9	Dental Insurance	3,900
10	Life Insurance (nontaxable portion)	5,130	(5,400-270)
11	Dependent Care	4,400
12	Professional Dues	1,380
13	Nontaxable Total	27,310	(8+9+10+11+12)
	After-tax benefit of salary and benefits	448,199	(7+13)