Question 1. Matilda works for a company with 1,000 employees. The com

1. Matilda works for a company with 1,000 employees. The company has a hospitalization insurance plan that covers all employees. However, the employee must pay the first $3,000 of his or her medical expenses each year. Each year, the employer contributes $1,500 to each employee’s health savings account (HSA). Matilda’s employer made the contributions in 2014 and 2015, and the account earned $100 interest in 2015. At the end of 2015, Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy. As a result, Matilda must include in her 2015 gross income:

a. $0.

b. $100.

c. $1,600.

d. $3,100.

e. None of the above.

2. All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums ($8,000 for each employee). None of the employees has sufficient medical expenses to deduct the premiums. Instead of giving raises next year, United is considering paying the employee’s hospitalization insurance premiums. If the change is made, the employee’s after­tax and insurance pay will:

a. Decrease by the same amount for all employees.

b. Increase more for the lower paid employees (10% and 15% marginal tax bracket).

c. Increase more for the higher income (35% marginal tax bracket) employees.

d. Increase by the same amount for all employees.

e. None of the above.

3. The plant union is negotiating with the Eagle Company, which is on the verge of bankruptcy. Eagle has offered to pay for the employees’ hospitalization insurance in exchange for a wage reduction. The employees each currently pay premiums of $4,000 a year for their insurance.

a. If an employee’s wages are reduced by $5,000 and the employee is in the 28% marginal tax bracket, the employee would benefit from the offer.

b. If an employee’s wages are reduced by $4,000 and the employee is in the 15% marginal tax bracket, the employee would benefit from the offer.

c. If an employee’s wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer.

d. a., b., and c.

e. None of the above.

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