ABC Inc. provides employer-sponsored health insurance to its employees. The company pays 80% of the premiums and the employees pay the remaining 20% through a cafeteria plan sponsored by the company. The company offers two types of health plans: a traditional plan with a $500 deductible and a 20% coinsurance, and a high-deductible health plan (HDHP) with a $2,000 deductible and a 10% coinsurance. The company also contributes $500 per year to a health savings account (HSA) for each employee who enrolls in the HDHP. The average annual premium for the traditional plan is $6,000 per employee and the average annual premium for the HDHP is $4,000 per employee.

Assume that ABC Inc. has 100 employees, each employee earns $50,000 per year, and the effective corporate income tax rate and payroll tax withholding rate are both 25%.

Calculate the tax consequences for ABC Inc. and its employees under the following scenarios:
1. Scenario 1: All employees choose the traditional plan.
2. Scenario 2: All employees choose the HDHP and the HSA.

Answer rating: 100% (QA)

To calculate the tax consequences for ABC Inc and its employees in both scenarios well need to consi... View the full answer