Question

Read the scenario.

Jorge lives in a country that uses a progressive tax system in which his taxable income is taxed at a specific percentage. In 2016, Jorge made $90,000 and was taxed at 25 percent. He is due for a $5,000 raise in 2017. At that time, his tax bracket will change to 30 percent.

Which is true regarding Jorge’s financial situation after his raise?

After the raise, Jorge will take home $1,000 more per year.
After the raise, Jorge will take home $5,000 more per year.
After the raise, Jorge will take home $1,000 less per year.
After the raise, Jorge will take home $5,000 less per year.

Answer 1

After the raise, Jorge will take home $1,000 less per year

Step-by-step explanation:

It sounds ironical, but Jorge will actually get home 1,000 dollars less after he got an increase of his wage of 5,000 dollars. The country in which Jorge lives has a progressive taxation, meaning that there are certain boundaries about the taxation, depending on the earning. In this case, Jorge was taxed 25% when he was earning 90,000 dollars per year, but that was obviously the boundary, as once he got the rise of 5,000 dollars and he started earning 95,000 dollars, he got into the zone of 30% taxation. This lead to Jorge actually bringing home 1,000 dollars less annually, as before the rise he was bringing home 67,500 dollars, while after the rise he brings 66,500 dollars.