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Emily, who is single, has been offered a position as a city landscape consultant. The position pays $153,800 in cash wages. Assume Emily has no dependents. Emily deducts the standard deduction instead of itemized deductions, and she is not eligible for the qualified business income deduction. (Use the tax rate schedules.) (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Required:
a. What is the amount of Emily’s after-tax compensation (ignore payroll taxes) and his income tax liability?
b. Suppose Rick receives a competing job offer of $102,500 in cash compensation and nontaxable (excluded) benefits worth $4,900.
c. What is the amount of Emily’s after-tax compensation (ignore payroll taxes) and his income tax liability?

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Answer:

a) using the 2020 tax schedule:

Emily's taxable income = $153,800 - $12,200 = $141,600

Emily's tax liability = $14,605.50 + [($141,600 - $85,525) x 24%] = $28,063.50

Emily's after tax compensation = $153,800 - $28,063.50 = $125,736.50

b and c ) if Emily (or Rick?) get a $102,500 offer that includes benefits worth $4,900 that are not taxable:

taxable income = $102,500 - $12,200 = $90,300

tax liability = $14,605.50 + [($90,300 - $85,525) x 24%] = $15,751.50

after tax compensation = $102,500 - $15,751.50 + $4,900 = $91,648.50

It can be deduced that the amount of Emily’s after-tax compensation will be $135784.50.

How to calculate the after-tax compensation

Gross income = $153800

AGI deduction = 0

Adjusted gross income = $153800

Standard deduction = $12400

Taxable income = $141400

Income tax liability= $28015.50

After tax compensation = $135784.50

When Rick receives a competing job offer of $102,500 in cash compensation and nontaxable benefits worth $4,900, the amount of Emily’s after-tax compensation will be:

Gross income = $144000

AGI deduction = 0

Adjusted gross income = $144000

Standard deduction = $12400

Taxable income = $131600

Income tax liability= $25663.50

After tax compensation = $128136.50

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