1. Paulie has group Disability Income Insurance from his employer, Barone Company. The premium is $1,500 per year for the insurance policy. In the event Paulie becomes permanently disabled, and cannot work another day in his life, the policy will pay a benefit of $2,500 per month / $30,000 per year. Paulie has a combined tax-rate of 32%. Be sure to show all work and calculations, and briefly explain your answer.

a) Assume the above Disability Income Insurance policy is financed using an employee-pay-all method, and Paulie pays the $1,500 premium with after-tax income. In the event Paulie becomes disabled, how much tax will he pay on the annual benefit amount? [2 points]

b) Assume the above Disability Income Insurance policy is financed using a contributory method. Paulie pays $600 of the premium with after-tax income, and his employer pays the remaining $900 of premium. In the event Paulie becomes disabled, how much tax will he need to pay on the annual benefit amount? [2 points]