Assignment:
Under current law, employer-paid health insurance premiums are deductible by the employer and not taxable to the employee. Suppose instead only the first $1,000 of such premiums were nontaxable. If an employee was in the 15% tax bracket, how much would his employer have to pay him in cash to make him indifferent between the cash and $3,000 of health insurance premiums? Assume the employee cannot deduct any health insurance premiums he pays himself because his medical expenses are far below 7.5% of adjusted gross income. What if his tax bracket were 31%?
Provide complete and step by step solution for the question and show calculations and use formulas.