Question

7. In 2019, Taxpayer (“T”) is a single, 65 year-old individual who is a U.S. citizen. T turned 65 in 2019. T receives $18,000 of social security income in 2019 (the first year T received Social Security Benefits). Also, T received $6,000 of interest income from a municipal bond in both 2018 and 2019. On June 1, 2018, T took a job with a multi-national corporation which paid T $5,000 per month. As a condition of the job, T is required to work overseas, in the country of Austria, and T did in fact work in Austria for 214 days (From June 1 – December 31) in 2018. T is offered to continue to work (still in Austria and still for $5,000 per month) for seven additional months (from January 1 until the end of July, which is 211 days) in 2019, at which point T’s position would terminate. T is trying to decide whether T wants to continue to work for seven months in 2019 or quit on January 1. (These are T’s only transactions during 2018 and 2019).

a. What is T’s Gross Income in 2019 if T continues to work through July of 2019? __________________________________

b. What is T’s Gross Income in 2019 if T does NOT continue to work in 2019? __________________________________

c. Excluding the effects of the payroll tax and any credits, What is the economic benefit to T of continuing to work for 7 months in 2019 (meaning how much total extra money, after-tax, will T have as a result of continuing to work in 2019)? _____________________

Answer 1

Here, T is 65-Year-old U.S. Citizen & his earnings for the Year 2019 are as under:

Social Security Income = $ 18,000

Interest Income = $ 6,000

Salary from Multi-National Corporation = $ 5,000 per month

Now,

a. Calculation of T's Gross Total Income in 2019 if T continues to work through July of 2019.

As T decides to continue work through July of 2019 under Multi-national Corporation, he will be earning $ 5,000 per month which will make him ineligible for receiving Social Security Income as he will be earning more than $ 783 per month.

So, Gross Total Income of T for 2019 = Salary Income + Interest Income = ($ 5,000*7) + $ 6,000 = $ 41,000.

b. Claculation of T's Gross Total Income in 2019 if T decides not to continue to work in 2019.

If T decides not to continue work in 2019, he will be earning only interest income of $ 6,000 which is $ 500 per month which satisfies the condition for receiving Social Security Income and also he is the 65-Year-old U.S. Citizen. So, he will receive Social Security Income of $ 18,000.

So, Gross Total Income of T for 2019 = Social Security Income + Interest Income = $ 18,000 + $ 6,000 = $ 24,000.

c. Economic Effect to T for continuing to work for 7 months in 2019 (ignoring payroll tax and credits).

From the calculation, under "a" and "b" as above we can clearly identify the Economic Effect to T for continuing to work for 7 months under MNC in 2019 is = $ 41,000 - $ 24,000 = $ 17,000.