A: We can’t tell you whether or not to leave your job, but we can provide some insight into the tax ramifications.
You’d gain about $7,500 in salary (at least until your September, raise kicks in), but you’d lose $3,000 a year in tax-free benefits. (With more employers shifting health insurance costs to employees, though, that number could change dramatically.)
All things being equal, you’re better off receiving more in the way of tax-free than salary.
Say you’re receiving $90,000 in taxable salary and $10,000 in tax-free fringes (including health insurance) at your current job. That’s better than a comparable package of $95,000 in salary and $5,000 in fringe benefits. Reason: You have to pay tax on the additional $5,000 of salary. In the 28 percent tax bracket, that will cost you $1,400 more in federal income tax.
Furthermore, it’s better to have a lower adjusted gross income (AGI) on your personal return for other tax purposes such as the deduction floors for medical and miscellaneous expenses. Finally, you should consider the potential impact on state and local taxes, as well.
While taxes aren’t the be-all and end-all, the tax implications make this a closer call than it first appears, especially if you expect to receive a healthy salary boost at your current job.
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