Susan Works as an Advertising Executive for a Small Business

Multiple Choice

Susan works as an advertising executive for a small business making $40,000 per year and is in a tax bracket with a 30 percent marginal rate. She currently purchases a $5,000 health insurance plan outside of her employer from her net pay. Her employer offers her the option to purchase the same health insurance plan on a pretax basis through the company (in other words, the cost of the health insurance is subtracted out of her gross pay before her taxes are computed) . If she decides to do so, the purchase of the $5,000 health insurance plan through her employer would now only cost her how much in terms of a reduction in her net pay?

A) $1,000
B) $1,500
C) $3,500
D) $5,000