Question

Mrs. King, a single taxpayer, earns a $66,000 annual salary and pays 15 percent in state and federal income tax. If tax rates increase so that Mrs. King’s annual tax rate is 20 percent, how much additional income must she earn to maintain her after-tax disposable income? Additional Income Before Tax =

Answer 1

$4125

Explanation:

Let 'a' represent the additional income Mrs. King must earn. In order for her disposable income to remain the same, we must have ...

(66000 +a)(1 -0.20) = 66000(1 -0.15)

66000 +a = 66000(0.85/0.80) = 66000(1 +0.05/0.80)

a = 66000(5/80) = 4125

Mrs King must earn $4125 more before tax to maintain her after-tax income.