Question

Which of the following would affect an employee’s net pay?
a.
Opting out of their employer’s dental insurance plan and putting the money saved into their employer’s health insurance plan
b.
Claiming a different number of dependents and thereby reducing their income tax withholdings
c.
Getting a raise and putting the extra money into a 401(k) plan
d.
Receiving a bonus in the form of extra vacation days

Answer 1

Answer: b and c.

- b) Changing the number of dependents changes federal/state tax withholdings, so take-home pay changes.
- c) Electing to put a raise into a 401(k) increases pre-tax payroll deductions, which alters net pay (it reduces the cash received even though retirement savings rise).
- a) Merely reallocating the same amount from dental to health generally won’t change net pay (only if the premium amounts differ would net pay change).
- d) Extra vacation days are noncash and do not change net pay.