Mr. and Mrs. TB are going through an amicable divorce. Mrs. TB, who is a full-ti

Question

Mr. and Mrs. TB are going through an amicable divorce. Mrs. TB, who is a full-time homemaker, will have custody of their two children, ages 2 and 4. She suggested that Mr. TB pay $4,000 child support each month. He countered by offering to pay $1,600 child support and $3,000 alimony each month if he can claim their two children as dependents. In either case, Mrs. TB will qualify as a head of household. Mr. TB’s taxable income averages $150,000, putting him in the 28 percent marginal tax bracket. Use Individual tax rate schedules and Standard deduction table.

Compute Mr. TB’s annual after-tax cost and Mrs. TB’s annual after-tax cash flow if she accepts his counterproposal.

Individual Tax Rate Schedules Married Filing Jointly and Surviving Spouse If taxable income is: Not over $18,650 Over $18,650 but not over $75,900 Over $75,900 but not over $153,100 Over $153,100 but not over $233,350 $29,752.50 + 28% of excess over $153,100 Over $233,350 but not over $416,700 $52,222.50 + 33% of excess over $233,350 Over $416,700 but not over $470,700 $112,728 + 35% of excess over $416,700 Over $470,700 Married Filing Separately If taxable income is: Not over $9,325 Over $9,325 but not over $37,950 Over $37,950 but not over $76,550 Over $76,550 but not over $116,675 Over $116,675 but not over $208,350 $26,111.25 + 33% of excess over $116,675 Over $208,350 but not over $235,350 $56,364 + 35% of excess over $208,350 Over $235,350 Heads of Household If taxable income is: Not over $13,350 Over $13,350 but not over $50,800 Over $50,800 but not over $131,200 $6,952.50 + 25% of excess over $50,800 Over $131,200 but not over $212,500 $27,052.50 + 28% of excess over $131,200 Over $212,500 but not over $416,700 $49,816.50 + 33% of excess over $212,500 Over $416,700 but not over $444,550 $117,202.50 + 35% of excess over $416,700 Over $444,550 Single If taxable income is: Not over $9,325 Over $9,325 but not over $37,950 Over $37,950 but not over $91,900 Over $91,900 but not over $191,650 Over $191,650 but not over $416,700 $46,643.75 33% of excess over $191,650 Over $416,700 but not over $418,400 $120,910.25 + 35% of excess over $416,700 Over $418,400 The tax is: 10% of taxable income $1,865.00 + 15% of excess over $18,650 $10,452.50 + 25% of excess over $75,900 $131,628 + 39.6% of excess over $470,700 The tax is: 10% of taxable income $932.50 + 15% of excess over $9,325 $5,226.25 + 25% of excess over $37,950 $14,876.25 + 28% of excess over $76,550 $65,814 39.6% of excess over $235,350 The tax is: 10% of taxable income $1,335.00 + 15% of excess over $13,350 $126,950.00 + 39.6% of excess over $444,550 The tax is: 10% of taxable income $932.50 + 15% of excess over $9,325 $5,226.25 + 25% of excess over $37,950 $18,713.75 + 28% of excess over $91,900 $121,505.25 + 39.6% of excess over $418,400

Explanation / Answer

* All figures are in $

* According to IRS Child support Payments are neither deductible by the payer nor taxable to the payee.

** Alimony is treated as Taxable income by the recepient and can be deducted by the paying spouse.

Answer

Scenerio 1 Mr. TB pay $4,000 child support each month

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