Question

Santini's new contract for 2022 indicates the following compensation and benefits:

Benefit Description Amount
Salary $ 130,000
Health insurance 9,000
Restricted stock grant 2,500
Bonus 5,000
Hawaii trip 4,000
Group-term life insurance 1,600
Parking ($310 per month) 3,720
Santini is 54 years old at the end of 2022. He is single and has no dependents. Assume that the employer matches $1 for $1 for the first $6,000 that the employee contributes to his 401(k) during the year. The restricted stock grant is 500 shares granted when the market price was $5 per share. Assume that the stock vests on December 31, 2022, and that the market price on that date is $7.50 per share. Also assume that Santini is willing to make any elections to reduce equity-based compensation taxes. The Hawaii trip was given to him as the outstanding salesperson for 2021. The group-term life policy gives him $150,000 of coverage. Assume that Santini does not itemize deductions for the year.

Determine Santini's taxable income and income tax liability for 2022. Use Tax rate schedules and Exhibit 12-8.

Note: Round your answers to the nearest whole dollar amount.

Answer 1

Santini's taxable income for 2022 is $131,970 after accounting for benefits, stock grant vesting, and 401(k) contributions. His income tax liability, calculated using the provided tax rate schedules, amounts to $33,120.

Step-by-step explanation:

To determine Santini's taxable income for 2022, we need to add up all of his income and benefits and then adjust them based on their taxability. Santini's total compensation from different sources includes a basic salary, health insurance, a restricted stock grant, a bonus, a non-cash benefit from a Hawaii trip, group-term life insurance, and paid parking.

• 
  
• Salary: $130,000
• 
  
• Health insurance: $9,000
• 
  
• Restricted stock grant: (500 shares * $7.50 market price) - (500 shares * $5 grant price) = $1,250 taxable benefit
• 
  
• Bonus: $5,000
• 
  
• Hawaii trip: $4,000
• 
  
• Group-term life insurance: $1,600
• 
  
• Parking: $3,720

Before the employer's match on his 401(k) contribution, Santini's gross income is $130,000 (salary) + $5,000 (bonus) + $4,000 (Hawaii trip) + $1,250 (net taxable restricted stock grant) + $3,720 (parking) = $143,970. Assuming that Santini contributes at least $6,000 to his 401(k), which is matched by the employer, his taxable gross income, before retirement contributions, would be $137,970. After subtracting the $6,000 401(k) contribution, Santini's net taxable income would be $131,970.

Now, we'll apply the tax rate schedules to calculate his income tax liability:

• 
  
• Up to $50,000: $7,500 tax
• 
  
• $50,000 to $75,000: $13,750
• 
  
• Above $75,000: $131,970 - $75,000 = $56,970, 34% on this amount = $19,369.80

Add up these parts gives us: $7,500 + $6,250 (25% of the amount over $50,000) + $19,369.80 = $33,119.80, which is Santini's total tax liability for 2022, rounded to the nearest whole dollar: $33,120.

Answer 2

Santini's taxable income for 2022 is $153,970, and his income tax liability is $43,228. This calculation includes his salary, benefits, and the realized gain from restricted stock, while excluding the non-taxable items such as the employer match for his 401(k) and the non-taxable portion of life insurance.

Step-by-step explanation:

To determine Santini's taxable income for 2022, we need to add together all components of his compensation and benefits that are subject to income tax, following tax rules and regulations. Here is the breakdown:

• Salary: $130,000
• Health insurance: $9,000
• Bonus: $5,000
• Hawaii trip: $4,000
• Parking: $3,720
• Group-term life insurance: Excluded up to $50,000 in coverage, so $0 is taxable
• 401(k) matching: Excluded from taxable income as it is a retirement contribution, so $0 is taxable
• Restricted stock grant: The market value upon vesting minus the original grant value; $7.50 * 500 shares - $2,500 = $1,250 is taxable

Adding these amounts gives us Santini's gross income: $130,000 + $9,000 + $5,000 + $4,000 + $3,720 + $1,250 = $153,970. We then apply the tax rate schedules to compute the tax liability:

1. On the first $50,000, tax is $7,500
2. On the amount over $50,000 up to $75,000 ($25,000), tax is $7,500 + 25% of $25,000 = $13,750
3. For the amount over $75,000 up to $100,000 ($25,000), tax is $13,750 + 34% of $25,000 = $22,250
4. On the amount over $100,000 ($53,970), tax is $22,250 + 39% of $53,970 = $43,228.30

The total tax liability is therefore $43,228 (rounded to the nearest whole dollar).