Question

Brittany earns $18 per hour and works 30 hours per week. She is single and claims 0 0 withholding allowances. She pays $ 55 in health insurance, federal taxes, FICA tax, and 4% state income tax. If she participates in her employer's cafeteria plan and has the $55 per week for health insurance, how much will it affect her net pay?

Answer 1

Brittany's gross weekly earnings, before any taxes or deductions, are $18/hour * 30 hours/week = $540/week.

With the cafeteria plan, the $55 she pays for health insurance is deducted from her gross pay before taxes are calculated. This effectively lowers her taxable income to $540 - $55 = $485/week.

Her FICA (Social Security and Medicare) tax is a fixed percentage. So, with the cafeteria plan, her FICA tax would be $485 * 7.65% = $37.11 approximately.

The 4% state income tax would now be assessed on the lowered taxable income of $485. That amounts to $485 * 4% = $19.40.

To calculate federal income tax, we'd need to know the exact tax bracket she falls into, but this information is not provided. Assuming that she pays a certain percentage of her income in federal taxes, this percentage will be applied to her lower taxable income of $485 (rather than the full $540), thereby reducing her federal tax liability.

Therefore, by participating in her employer's cafeteria plan, Brittany reduces her taxable income and, as a result, the amount she owes in taxes. Consequently, her net pay (after-tax income) will be higher because she's paying less in taxes. The exact amount would depend on the specifics of her federal tax rate.