Q1. Michael's employer provides a health insurance benefit with a market value of $6,000. Matt does not receive employer-provided health insurance and instead purchases an individual health insurance policy with a premium of $6,000. Both Michael and Matt are in the 40% tax bracket.
a. How much before-tax income (i.e., gross income) does Matt need in order to purchase his individual insurance policy?
b. What is Michael's tax liability for the health insurance benefit he receives from his employer?
Q2. Amanda participates in her employer's long-term disability income plan. The employer pays 65% of the cost of the plan and Amanda pays 35%.
a. Assume Amanda pays her share of the premium with before-tax dollars. If Amanda becomes disabled, what percent of her disability income is taxable? Why?
b. Assume Amanda pays her share of the premium with after-tax dollars. If Amanda becomes disabled, what percent of her disability income is taxable? Why?