Question

Seiko’s current salary is $85,000. Her marginal tax rate is 32 percent and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for an office equipment company. Her friend, knowing of her interest in sports cars, tells her about a manager position at the local BMW and Porsche dealer. The new position pays only $75,000 per year, but it allows employees to purchase one new car per year at a discount of $15,000. This discount qualifies as a nontaxable fringe benefit. In an effort to keep Seiko as an employee, her current employer offers her a $10,000 raise. What is the annual after tax cost to Idaho office supply if it provides Seiko with the $10,000 increase in salary?

Answer 1

Assuming marginal tax rate of office equipment company(employer) is 35%.

Additional salary = $ 10000

Income tax benefit = $ 10000 x 35% = $ 3500

Annual after tax cost of additional salary = $ 10000 - $ 3500 = $ 6500.