Question

Seb's salary is $X per annum. The tax system is such that Seb pays a 15% flat rate of income tax on his salary. The tax system is due for reform, and politicians have suggested the following:

1. Any income under $12,000 should be tax free.
2. Anything above $12,000 should be taxed at 25%.
Given that Seb will be paying $1,500 more under the new system, calculate how much tax Seb pays under the current system. You can assume that X>$12,000.

Answer 1

Seb pays $6,750 in taxes annually under the current system with a 15% flat rate. This is calculated by setting up an equation to determine his income and then applying the current tax rate to this income.

Step-by-step explanation:

To calculate the amount of tax Seb pays under the current system, we must determine what his new tax payment would be under the proposed system and then subtract the $1,500 increase from that amount. Under the new system:

1. The first $12,000 of Seb's income is tax-free.
2. Income above $12,000 is taxed at 25%.

Let's denote Seb's salary as $X. If Seb is paying $1,500 more under the new system, then the new tax he is paying is:

Tax under new system = Tax on (X - $12,000)

This is calculated as:

New Tax = 0.25 × (X - $12,000)

The old system taxes $X at 15%, so:

Old Tax = 0.15 × X

Given Seb pays $1,500 more, we set up the equation:

0.25 × (X - $12,000) = 0.15 × X + $1,500

Now, we solve the equation for X and then calculate the old tax:

0.25X - $3,000 = 0.15X + $1,500

0.10X = $4,500

X = $45,000

Thus, Seb's current annual tax is:

0.15 × $45,000 = $6,750

So, under the current system, Seb pays $6,750 in taxes annually.

Answer 2

Answer: $2,700

Step-by-step explanation: