Rick, who is single, has been offered a position as a city landscape consultant.

Question

Rick, who is single, has been offered a position as a city landscape consultant. The position pays $151,400 in cash wages. Assume Rick has no dependents. Rick deducts the standard deduction instead of itemized deductions. (Use the tax rate schedules.)

b-1. Suppose Rick receives a competing job offer of $142,000 in cash compensation and nontaxable (excluded) benefits worth $9,400. What is the amount of Rick’s after-tax compensation for the competing offer?  (Round your intermediate calculations and final answer to the nearest whole dollar amount. Enter deductions as negative amounts).

b-2. Which job should he take if taxes are the only concern?

    

Landscape consultant

Competing job

Description Amount (1) Gross income (2) For AGI deductions (3) Adjusted gross income $0 (4) Standard deduction (5) Taxable income $0 (6) Income tax liability Total after-tax compensation

Explanation / Answer

b-1)

b- 2 Note that Rick after tax benefit with lower salary and more nontaxable benefits. Rick is likely to take the second option, particularly if he would have paid for the bebefits had they not been provided to him as compensation.

(1) Gross income $142,000 142,000 cash compensation (2) For AGI deduction 0 (3) Adjusted Gross income $142,000 (1) -(2) (4) Standard deduction ($12000) single (according to 2018) (5) taxable income $130,000 (3) - (4) (6) Income tax liability $25,489.5 14,089.5 + 24% (130,000 -82,500) according to the tax rate of 2018 Total after - tax compensation $125,910.5 (1) -(6) + 9,400 excluding benefits

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