Question

Suppose that Bill’s gross pay per week is $500, and every week he purchases $50 worth of health insurance. Assume Bill’s marginal tax rate is 15%. If Bill’s health insurance were purchased through work, his net pay (take-home less insurance) would change from _____ to ___.

Group of answer choices

a. $350; $370

b. $360; $400

c. $370; $377.50

d. $375; $382.50

Answer 1

Ans.- (D)

If Bill's health insurance is not paid through his work then his net pay is: 500(1-0.15) - 50 = 375

If his insurance is paid through his work then his net pay if : (500-50)(1-0.15 )= 382.5

i.e. he will pay tax after deducting insurance amount from his income if he purchases insurance through work.