Question
In: Accounting
Emily, who is single, has been offered a position as a city landscape consultant. The position...
Emily, who is single, has been offered a position as a city landscape consultant. The position pays $152,600 in cash wages. Assume Emily has no dependents. Emily deducts the standard deduction instead of itemized deductions, and she is not eligible for the qualified business income deduction. (Use the tax rate schedules.) (Round your intermediate calculations and final answer to the nearest whole dollar amount.)
Problem 4-31 Part-a (Algo)
a. What is the amount of Emily’s after-tax compensation (ignore payroll taxes)?
b-1. Suppose Emily receives a competing job offer of $143,000 in cash compensation and nontaxable (excluded) benefits worth $9,600. What is the amount of Emily’s after-tax compensation for the competing offer?
Solutions
Expert Solution
Ans:
Taxpayer - Emily
Status - SIngle
Tax year - 2020
a.
| Description | Amount ($) |
| Cash Wages | $152600 |
| Less: Deductions for AGI | $0 |
| Adjusted Gross Income | $152600 |
| Less: Standard Deduction for 2020 | ($12400) |
| Taxable Income | $140200 |
| Tax liability (as per 2020 Tax rate schedule) -working 1 | $27728 |
| Total Compensation | $152600 |
| After tax compensation ($152600-$27728) | $124872 |
Working 1:
| Taxable Income | Tax rate | Tax amount |
| Up to $9875 | 10% | $987.50 |
| $9876 - $40125 | $987.50 plus 12% of the amount over 9875 | $4617.50 |
| $40126 - $85525 | $4617.50 plus 22% of the amount over $40125 | $14605.50 |
| $85526 - $140200 | $14605.50 plus 24% of the amount over $85525 | $27727.5 |
Tax liability of Emily is $27728.
b.
| Description | Amount ($) |
| Cash Wages | $143000 |
| Less: Deductions for AGI | $0 |
| Adjusted Gross Income | $143000 |
| Less: Standard Deduction for 2020 | ($12400) |
| Taxable Income | $130600 |
| Tax liability (as per 2020 Tax rate schedule) -working 2 | $25424 |
| Total Compensation ($143000 + $9600) including non taxable benefits | $152600 |
| After tax compensation ($152600-$25424) | $127176 |
Working 2:
| Taxable Income | Tax rate | Tax amount |
| Up to $9875 | 10% | $987.50 |
| $9876 - $40125 | $987.50 plus 12% of the amount over 9875 | $4617.50 |
| $40126 - $85525 | $4617.50 plus 22% of the amount over $40125 | $14605.50 |
| $85526 - $130600 | $14605.50 plus 24% of the amount over $85525 | $25423.5 |
Tax liability of Emily is $25424
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