Question

Neil works as a waiter and receives $150 a week in gross income. He earns approximately another $100 a week in tips. His combined pre-tax income is, therefore, $13,000. After exemptions and deductions the figure he uses to calculate his taxes is $5,550. This figure is known as Neil's

Answer 1

Neil's figure of $5,550 is his taxable income, which is used to calculate his taxes and is determined after deductions and exemptions from his gross income.

Step-by-step explanation:

Neil's figure of $5,550 is known as his taxable income. Taxable income is calculated by subtracting deductions and exemptions from one's gross income, including wages and tips. If we refer to the basic concepts of taxation, taxable income equals the adjusted gross income minus any deductions and exemptions. Neil's gross income from his job and tips total $13,000 annually. After accounting for his exemptions and deductions, he arrives at a taxable income of $5,550.

To calculate the actual tax, he would apply the relevant tax rate to this taxable income. For example, if Neil had to pay a 20% tax rate, his tax amount (T) would be $1,110 (20% of $5,550), which would then be subtracted from his taxable income to find his after-tax income.