Karen and Katie are looking at the company's health care options and trying to determine how much their take-home pay will go down or increase

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Karen and Katie are looking at the company's health care options and trying to determine how much their take-home pay will go down or increase if they sign up for the qualified cafeteria plan offered by the company. Explain the calculations of taxable income when qualified health care deductions are involved. Karen, a married woman with 4 exemptions, earns $2,000 per biweekly payroll. Katie, a single woman with 1 exemption, also earns $2,000 per biweekly payroll. The biweekly employee contribution to health care that would be subject to the cafeteria plan is $100.