Thursday, December 9, 2010

How do you figure out the relative impact of "pre-tax" expenses like health insurance payments?

I am working up a salary proposal and the employee co-pay on the health insurance is roughly 7500 pretax. How do I figure out how much that will affect my budget?
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That will depend upon your tax bracket. And your tax bracket is dependent upon your total income, filing status, number of exemptions, any itemized deductions, etc. so it's not easy to predict. However you can get a rough estimate by taking the Total Tax line from your tax return and comparing it to the table here: http://www.irs.gov/formspubs/article/0,,… The benefit will be roughly equal to your marginal tax rate times the $7,500. Keep in mind that if it drops you into a lower bracket that you'll need to crunch some more numbers to account for the lower tax rate.
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