Question

JDD Corporation provides the following benefits to its employee, Ahmed (age 57): Salary Health insurance Dental insurance Life insurance Dependent care Professional dues Personal use of company jet $307,000 15,400 4,800 4,200 4,500 1,400 293,000 The life insurance is a group-term life insurance policy that provides $253,000 of coverage for Ahmed. Assuming Ahmed is subject to a marginal tax rate of 32 percent, what is his after-tax benefit of receiving each of these benefits? (Use EXHIBIT 12-8.) (Enter all amounts as positive values. Round your intermediate computations and final answers to the nearest whole dollar.) Answer is complete but not entirely correct. Description Amount Taxable benefits Salary $ 307,000 Personal use of company jet 293,000 Life insurance (taxable portion) 270 X % $ 600,270 32 $ 192,179 X $ 420,392 Taxable total Marginal tax rate Income tax on benefits After-tax benefit of taxable items Nontaxable benefits Health insurance Dental insurance Life insurance (nontaxable portion) Dependent care Professional dues $ 15,400 4,800 3,640 X 4,500 1,400

Answer 1

Description	Amount ($)
Taxable benefits
Salary	307,000
Personal use of company jet	293,000
Life insurance (taxable portion) (Note 1)	3,370
Taxable total	603,370
Marginal tax rate	32%
Income tax on benefits	193,078
After-tax benefits of taxable items	410,292
Non taxable benefits
Health insurance	15,400
Dental insurance	4,800
Life insurance (Non taxable portion) (Note 1)	830
Dependent care	4,500
Professional dues	1,400

Note (1)

If an employer pays life insurance premium on behalf of the employee, any premium paid for the coverage of up to $50,000 is exempt from tax. If the coverage is more than $50,000, the premium cost related to the first $50,000 is exempt from taxation and the remaining is taxable.

In this case, as the coverage amount is $253,000 (which exceeds $50,000) the portion of the premium related to $50,000 is not taxable and the remaining is taxable.

Therefore,

Non taxable premium = ($50,000/$253,000) * 4,200

                                       = $830

Taxable premium = ($4,200 - $830)

                                 = $3,370