Question

The plant union is negotiating with Eagle Company, which is on the verge of bankruptcy. Eagle has offered to pay for the employees' hospitalization insurance in exchange for a wage reduction. The employees each currently pay premiums of $4,000 a year for their insurance. Which of the following statements is true?

A) The employees' gross income will decrease due to the reduction in insurance premiums.
B) The employees' gross income will increase due to the additional insurance coverage.
C) The wage reduction is not considered part of the employees' gross income.
D) The employees' gross income will remain unchanged.

Answer 1

The wage reduction is not considered part of the employee's gross income.

Step-by-step explanation:

The correct statement is C) The wage reduction is not considered part of the employee's gross income.

In this scenario, Eagle Company is offering to pay for the employees' hospitalization insurance in exchange for a wage reduction. Although the employees currently pay premiums for their insurance, the reduction in premiums as a result of Eagle Company paying for the insurance would not be considered part of the employee's gross income.

Therefore, the employee's gross income will remain unchanged, as the wage reduction is not counted as part of their income.