The 2011 federal income tax rate for a single individual is 10% of the taxable i

Question

The 2011 federal income tax rate for a single individual is 10% of the taxable income amount over $0; 15% of the amount over $8,350; 25% of the amount over $33,950; 28% of the amount over $82,250; 33% of the amount over $171,550; and 35% of the amount over $372,950. Suppose you are filing as a single individual with a taxable income of $165,878 in 2011 and the expected inflation rate is 2.8% i 2012. To ensure that your purchasing power from income does not decrease, your employer gives you a 3%raise for the year 2012. Calculate your 2012 after tax real income using 2011 tax rates. Are you better off or worse off in 2012?

Explanation / Answer

P12 - P11/P11 *100 = 2.8 P11 = 165878 - tax since its above 82 250 tax is 28% P11 = 165878(1-.28) = 119432 P12 = P11(1+0.028) = 122776 given that 3% raise for year 2012 so P12 = 122776(1+0.03) = 126460 so 2012 is worse than 2011

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