Question

Required information [The following information applies to the questions displayed below.] Hardaway earned $105,000 of compensation this year. He also paid (or had paid for him) $7,450 of health insurance (not through an exchange). What is Hardaway's AGI in each of the following situations? (Ignore the effects of Social Security and self-employment taxes.) Hardaway is an employee, and his employer paid Hardaway's $7,450 of health insurance for him as a nontaxable fringe benefit. onsequently, Hardaway received $97,550 of taxable compensation and $7,450 of nontaxable compensation. o. Hardaway is a self-employed taxpayer, and he paid $7,450 of health insurance himself. He is not eligible to participate in an employer-sponsored plan.

Answer 1

a. Hardaway is an employee, and his employer paid his $7,450 of health insurance for him as a nontaxable fringe benefit.

In this situation, Hardaway's AGI (Adjusted Gross Income) would be calculated by subtracting any above-the-line deductions from his taxable compensation. However, since the employer paid for his health insurance as a nontaxable fringe benefit, it is not included in his taxable compensation.

Therefore, Hardaway's AGI would be $97,550, which is the amount of his taxable compensation.

b. Hardaway is a self-employed taxpayer, and he paid $7,450 of health insurance himself. He is not eligible to participate in an employer-sponsored plan.

As a self-employed taxpayer, Hardaway can deduct the cost of health insurance premiums as an above-the-line deduction. Therefore, the $7,450 he paid for health insurance would be deducted from his gross income to arrive at his AGI.

Hardaway's AGI would be calculated as follows:

AGI = Compensation - Health Insurance Premiums

AGI = $105,000 - $7,450

AGI = $97,550

Therefore, in this situation, Hardaway's AGI would also be $97,550.