Question

Job A pays an annual salary of $42,100, while job B pays $44,400. The taxpayer choosing between the two jobs files his federal income tax return with a standard deduction of $5700, only himself as an exemption for $3650, and no additional adjustments to income. After taxes, what is the difference in pay between the two jobs?

Answer 1

The after-tax difference in pay between the two jobs is $2,070, with Job A offering an after-tax salary of $38,825 and Job B offering $40,895, assuming a simple 10% tax rate.

Step-by-step explanation:

To calculate the after-tax difference in pay between two jobs, we first need to determine the taxable income for each job by subtracting the standard deduction and exemption from the annual salary. For Job A, with a salary of $42,100, the taxable income is calculated as follows: $42,100 - ($5,700 + $3,650) = $42,100 - $9,350 = $32,750. For Job B, which pays $44,400, the process is similar: $44,400 - ($5,700 + $3,650) = $44,400 - $9,350 = $35,050.

We then need to refer to the tax tables to calculate the federal tax for each of these taxable incomes. For simplicity, let's assume a tax rate of 10% for the purposes of this example, though actual tax calculations would depend on current tax brackets and rates. Job A's taxes would be $32,750 × 10% = $3,275, and Job B would have taxes of $35,050 × 10% = $3,505.

The after-tax salary is the original salary minus the calculated taxes. Therefore, Job A's after-tax salary is $42,100 - $3,275 = $38,825, and Job B's after-tax salary is $44,400 - $3,505 = $40,895.

The difference in after-tax pay between the two jobs is $40,895 - $38,825 = $2,070.