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Wsj 05

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Wall Street Journal: Assignment #5

This is an INDIVIDUAL assignment. Submit your answers in hardcopy at the beginning of class. Check the syllabus for the due date. Handwritten answers are NOT acceptable. Use Word to write your answers.

Chapter 7: Taxes 1. Assume you are offered a job with a salary of $40,000 and a bonus of 10% based on your performance during the year. a. If you receive your full bonus in year 1, what is your total (gross) pay for the year?

b. Assume you are filing under single status. Using the income tax table provided below, answer the following questions. a) SINGLE person (including head of household)— | If the amount of wages (after subtracting withholding allowances) is: | The amount of income tax to withhold is: | Not over $2,250........ | $0 | Over— | But not over— | of excess over— | $2,250 | —$11,325 | .. | $0.00 plus 10% | —$2,250 | $11,325 | —$39,150 | .. | $907.50 plus 15% | —$11,325 | $39,150 | —$91,600 | .. | $5,081.25 plus 25% | —$39,150 | $91,600 | —$188,600 | .. | $18,193.75 plus 28% | —$91,600 | $188,600 | —$407,350 | .. | $45,353.75 plus 33% | —$188,600 | $407,350 | —$409,000 | .. | $117,541.25 plus 35% | —$407,350 | i. What is your marginal tax rate?

ii. What is your average tax rate? First determine the actual tax withheld from your income.

iii. Why do the two tax rates vary? Explain why the US tax code is structured in this manner. Do you agree with this structure? Why or why not?

iv. Calculate your take-home pay using the pay in part 1.a. and the taxes calculated in part 1.b.ii.

v. Which is the relevant tax rate (marginal or average) as you consider whether or not you should work a second job to help you pay off your student loans more quickly? Why?

2. Your employer offers a 401k that you can...

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