In option a) Nothing is subject to taxation unless the coverage exceeds $50,000. In option b) $1161 should be recognized as taxable income by Mrs. Flay.
A. The plan offers $40,000 in insurance.
Ans: Nothing is subject to taxation unless the coverage exceeds $50,000.
Here, the plan's coverage is for $40,000, hence there is no taxable income.
B. The $2,75,000 in coverage under the plan.
Any amount over $50,000 will be taken into account when calculating taxable income. = 275000 - 50000 = 225000.
The rates are per $1,000 of insurance, so split $225,000 by $1,000. Given that a $1000 life insurance policy costs 43 cents a month, the answer is = 225.
Taxable earnings equal 225 * 0.43 * 12 = 1161.
$1161 should be recognized as taxable income by Mrs. Flay.
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