Final answer:
The after-tax difference between Chad's original claim for pain and suffering, loss of income, and punitive damages, and Global's offer is an additional $5,000 in Chad's favor when taking into account his 35% tax bracket and the non-taxable nature of compensatory damages.
Step-by-step explanation:
To calculate the after-tax difference between Chad's original claim and Global's offer, we need to consider the tax implications of each component. In the United States, compensatory damages for physical injuries, such as pain and suffering and loss of income, are typically not taxable. However, punitive damages are taxable.
Chad's original claim includes $50,000 for pain and suffering, $25,000 for loss of income, which are both non-taxable, and $100,000 in taxable punitive damages. Since Chad is in the 35 percent marginal tax bracket, he would pay $35,000 in taxes on the punitive damages (35% of $100,000). This would reduce his total after-tax income from his original claim to $140,000 ($50,000 + $25,000 + $100,000 - $35,000).
Global's offer stands at $120,000 for pain and suffering and $25,000 for loss of income, both non-taxable, summing up to $145,000. The after-tax difference between Chad's original claim and Global's offer is the total after-tax value of the original claim minus the offer: $140,000 - $145,000, which is a negative $5,000. Since punitive damages in the original claim would have been taxable, without them included in Global's offer, Chad actually has a higher after-tax income with the offered settlement.
Therefore, the after-tax difference to Chad between Chad's original claim and Global's offer is $5,000 more with the offer, even though the face value of the claim is lower due to the elimination of the punitive damages and the associated taxes.