Question

1. 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 (These are T’s only transactions during 2018 and 2019).

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

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

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3. 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)?

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Answer 1

As T turns 65 year old in 2019, Total Gross Income for 2019 includes Social security income + Interest income from investments + Salary from job.

Below mentioned are alternatives T can opt are as follows:-

A) T's gross income in 2019, if he continues to work through july'2019:-

Gross Income= Social security income+ interest income of bond + salary till july 2019

therefore, T's Gross income will be:-

PARTICULARS

AMOUNT

Social Security Income	18000 $
Interest Income from muncipal bond	6000 $
salary income from july-December (211 days/30days)= 7.03 months (convert days into month by dividing 30 days per month, as salary/month is given= 5000) therefore ,salary from july to december will be:( 7.03*5000)=	35167 $ (rounded off )

TOTAL GROSS INCOME

59167 $

B) Total Gross Income if, T does not continue to do job in 2019:-

PARTICULARS	AMOUNT
Social Security income	18000 $
Interest income from muncipal bond	6000 $
GROSS TOTAL INCOME	24000 $

Therefore, if T does not continue job for 2019 he will earn = 24000 $

C) Excluding the effects of the payroll Tax and any credits economic benefit to T of continuing job for 7 months in 2019 will be 35167 $ minus tax rate:- if tax rate is 10% then total income after tax will be- 31650 $ ( here tax rate is assumed to 10% as question does not mention tax rate.

Therefore, if T continues till july then his total income after tax will be:-

PARTICULARS	AMOUNT
Social Security Income	18000 $
Interest income on bond	6000 $
salary after tax (here tax assumed to be 10 %) Tax = 35167*10%=3517 Salary= (35167-3517)= 31650$	31650 $
TOTAL INCOME FOR T	55650 $

Therefore, T will earn 31650 $ more if he continues to do job.