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Eagle Life Insurance Company pays its employees $.30 per mile for driving their personal automobiles to and from work. The company reimburses each employee who rides the bus $100 a month for the cost of a pass. Tom, in his Mazda 2-seat Roadster, collected $100 for his automobile mileage, and Mason received $100 as reimbursement for the cost of a bus pass.Assume that Tom and Mason are in the 24% marginal tax bracket and the actual before-tax cost for Tom to drive to and from work is $0.30 per mile. What are Tom's and Mason's after-tax costs of commuting to and from work?

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jepessoa

Answer:

Tom must include the $100 in his gross income while Mason doesn't. Tom must include the $100 in his gross income, the after tax cost of commuting to work = $100 x marginal tax rate (24%) = $24. Since Mason is not required to include the $100 in his gross income, his after tax cost = $0.

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