Question

Mr. E, a petroleum engineer, earns an $72,500 annual salary, while Mrs. E, a homemaker, has no earned income. Under current law, the couple pays 20 percent in state and federal income tax. Because of recent tax law changes, the couple’s future tax rate will increase to 28 percent. If Mrs. E decides to take a part-time job because of the rate increase, how much income must she earn to maintain the couple’s after-tax disposable income? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Answer 1

Answer:

It will require an income for 80,556 before taxes

Explanation:

Fiorst, we will calculate the current tafter tax income:

72,500 x 20% = 14,500 tax expense

72,500 - 14,500 = 58,000 after-tax income

Now, we will calculate the pre-tax income to keep the same after-tax income with the new rate:

pretax income x ( 1 - new tax rate) = 58,000

pretax income x ( 1 - 0.28) = 58,000

pretax income = 58,000/0.72 = 80,555.56

At this level, Mr E will obtain the same after-tax income