Ms. C paid $560 of union dues and $691 for small tools used on the job. In each

Question

Ms. C paid $560 of union dues and $691 for small tools used on the job. In each of the following cases, compute her after-tax cost of these employment-related expenses. (Round your intermediate computations to the nearest whole dollar amount.)

Ms. C’s employer paid her a $1,251 reimbursement.

Ms. C received no reimbursement. Her AGI is $17,050, she doesn’t itemize deductions, and her marginal tax rate is 10 percent.

Ms. C received no reimbursement. Her AGI is $74,750, she itemizes deductions, and her marginal tax rate is 28 percent.

Ms. C received no reimbursement. Her AGI is $26,500, she itemizes deductions, and her marginal tax rate is 15 percent.

Explanation / Answer

i) As Ms. C's employer paid her full reimbursement of $1,251 ($560+$691), there will be no cost of these employment related expenses to Ms. C

ii) If Ms. C does not itemize deductions he will not get any deduction, thus her cost of employment related expense will be $1,251

iii) Ms. C itemize deduction but she must fulfill the limit of 2% of AGI for miscellaneous itemized deduction. Since itemized deduction for Ms. C is nil as her total expenses of $1,251 are lower than threshold of 2% of AGI (i.e. 2% of $74,750 = $1,495). Thus her cost would be $1,251.

iv) Ms. C's itemized deduction for her employment related expense is $721 ($1,251 - 2% of $26,500) and her tax savings from the deduction is $108 ($721*15%). Thus Ms. C's after tax cost is $1,143 ($1,251-$108).

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