Question

Amy is single with a salary of $50,000. She has been offered a new position that will raise her salary to $53,000.

The cut-off between the 18% and 25% tax brackets is $51,250. How much will her tax liability increase if she accepts the new position?

Answer 1

To calculate Amy's tax liability, we need to determine which tax bracket she falls into before and after the raise.

At a salary of $50,000, Amy falls into the 18% tax bracket. Her tax liability can be calculated as:

Tax liability before raise = $50,000 x 0.18 = $9,000

At a salary of $53,000, Amy's income would exceed the cut-off for the 18% tax bracket and place her into the 25% tax bracket. Her tax liability would be:

Tax liability after raise = ($51,250 x 0.18) + (($53,000 - $51,250) x 0.25) = $9,157.50

To calculate Amy's tax liability after the raise, we first calculate the amount of income that falls within the 18% bracket (which is up to the cut-off of $51,250), and multiply that amount by 0.18. Then, we calculate the amount of income that falls within the 25% bracket (which is the amount over $51,250), and multiply that amount by 0.25. Finally, we add these two amounts together to get the total tax liability.

Therefore, Amy's tax liability will increase by $157.50 if she accepts the new position.