Suppose that Trevor and Rachel McAdams are married and have three children. Rach

Question

Suppose that Trevor and Rachel McAdams are married and have three children. Rachel is the primary earner in the household. Trevor is considering joining the labor force, at which point he would earn $60 per hour for 40 hours per week. The cost of child care would be $10 per hour per child for 40 hours per week. Trevor is indifferent between working and staying at home except for the financial impact. Assume that his tax rate is 40%. Question 5 of 7 2.0 Points 0 Accepted characters Now assume that child care IS fully tax deductible and that child care at home is NOT imputed and taxed. Calculate the weekly difference between Trevor's take-home pay (after paying taxes and child care) if he works versus if he stays home to care for the children. (Do not enter commas, or dollar signs) $

Explanation / Answer

Earning per Hour $60

Earning 40 hours per week 40 * 60 = $2400

Now

Cost of child care per hour $10

Child care 40 hours per week 40 * 10 = $400

and for the 40% tax deduction

2400 * 40/100 = $960

So,

Take home pay 2400 - 960 = 1440

Excluding Child care cost

1440 - 400 = $1040

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