Sean earns a salary of $40,000. This year, Sean's employer establishes a cafeteria plan under which Sean signed a salary reduction of $2,500 for which $1,500 is to cover medical expenses and $1,000 is available to reimburse childcare costs. During the year, he uses his cafeteria plan to help pay for $2,000 of medical expenses and $2,500 of daycare costs. What is the total taxable to Sean this year?

$38,000

$35,500

$37,500

$40,000