University of Central Florida (UCF) GEB3006 Intro to Career Development and Financial Plannings Final Practice Exam 3

To determine the W-2 taxable income, you start with the gross salary and subtract any pre-tax contributions and deductions. The gross salary is $120,000; from this amount, we need to account for several deductions that affect the taxable income.

First, we subtract the employee's contributions to the 401(k), which amounts to $12,000. This contribution is made before taxes and reduces the taxable income directly.

Next, the flexible spending account (FSA) savings of $2,000 also come into play. Contributions to an FSA are also deducted from gross income before taxes.

The health insurance premiums paid by the employee, which total $3,000, are another deduction because these contributions are typically made with pre-tax dollars.

The employer's contributions to the 401(k) and health insurance premiums paid directly by the employer do not affect the employee's taxable income directly; they are not deducted from the employee's gross income for tax purposes.

Now let's calculate it step by step:

1. Start with the gross salary: $120,000.

2. Subtract the 401(k) contributions: $120,000 - $12,000 = $108,000.

3. Subtract the FSA savings