junior is a roofing supervisor who earns 55000 per year and

junior is a roofing supervisor who earns $55000 per year and has deductions of $10000. he has an opportunity to earn an extra $2500. Junior\'s average tax rate is 8% and his marginal tax rate is 12%for 2018. He and his employer each pay is 7.65% toward social security and medicare. how much is junior\'s after tax cash flow if he does the extra work?

Solution

Junior earning peryear $   55,000.00 Deduction $ (10,000.00) Net earning earning per year $   45,000.00 Earning from Extra work $      2,500.00 Total Cash inflow $   47,500.00 Tax @8% as per average tax $      3,800.00 Tax @8% on Normal Earning( 1) $      3,600.00 ( 45000*8%) Marginal tax @12% on extra income (2) $         300.00 (2500*12%) Total Tax liability (1+2) $      3,900.00 Tax as per average tax $      3,800.00 Hence Net cash flow after tax will be $   43,700.00 ( 47500-3800)