Question

Tyler has a 28 percent marginal tax rate. His employer is willing to provide health insurance coverage for Tyler if he will agree to a salary reduction. The insurance will cost the employer $5,040. If Tyler pays that same amount for health insurance premiums, he will need $7,000 in order to pay the premiums and the taxes on the compensation. How much of a cash flow savings is available to the company if it pays $5,040 for Tyler's health insurance, rather than $7,000 in compensation assuming the company has a 35 percent tax rate?

Answer 1

The cash flow saving will be of $1,274 considering the taxes

Step-by-step explanation:

Company pays 5040 with income tax saving = 1764 total = 3276

instead of:

7,000 in compensation with income tax saving = 2450 total = 4,550

4,550 - 3,276 = 1,274