Section 2.2 Benefi ts
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Example 2-2A
See It
Nita works as an economics professor at a university. She earns $7,740 every
month. She carries health insurance for herself and her two children. The total
premium for each month is $535.25. At this income level, Nita’s federal tax rate
is 25%. Calculate the amount of tax savings Nita will have if she has her health
insurance premiums withheld from her paycheck before her taxes are calculated.
Strategy
Use the formula:
tax savings = premium × tax rate
Solution
Step 1: Determine Nita’s monthly premium and the tax rate.
premium: $535.25
tax rate: 25%
Step 2: Convert the tax rate from a percentage to a decimal by moving the
decimal two places to the left.
25% → 0.25
Step 3: Multiply the premium by the tax rate.
tax savings = premium × tax rate
tax savings = $535.25 × 0.25
tax savings = $133.81
Check It
Omar is a loan offi cer at a local bank. He carries health insurance for himself,
his wife, and their three children. The monthly premium for health insurance that
is deducted from his paycheck is $660.72. Omar’s salary places him in the 15%
federal income tax rate. Calculate the amount of tax savings Omar will have if his
health insurance premiums are withheld from his paycheck before his taxes are
calculated.
Other Benefits
Most benefi ts have a measurable value. For example, if your employer
provides health insurance for you, the value of that benefi t could be measured
by fi nding out what such a plan would cost if you purchased it on your own.
Other benefi ts are easier to value. For example, your employer provides a $40
monthly cell phone allowance. That is the equivalent of receiving an additional
$480 per year. Sometimes, employees receive extra pay in the form of a stipend.
A stipend is usually paid for taking on additional work duties or for completing
work-related classes.