Question

Joyce, a widow, lives in an apartment with her two minor children (ages 8 and 10), whom she supports. Joyce earns $33,000 during 2017. She uses the standard deduction ($9,350) and qualifies for head-of-household filing status. The personal exemption amount for 2017 is $4,050. Round all computations to the nearest dollar. Click to access Earned Income Credit and Phaseout Percentages Table and the tax rates schedules. a. Calculate the amount, if any, of Joyce's earned income credit. b. During the year, Joyce is offered a new job that has greater future potential than her current job. If she accepts the job offer, her earnings for the year will be $39,000. Determine the increase or decrease in Joyce's net cash flow if she accepts the new job. Use the Tax Rate Schedule when computing her income tax.

Answer 1

ow - Head of Household) 017-Computation of Income and Tax thereon Particulars Keeps Old Job Takes New Job 39,000 9,350 -4,050 25,600 nalysis: Salary Less: Standard Deduction Less: Personal Exemption Taxable Income 33,000 9,350 -4,050 19,600 Particulars Salary Net Tax Due / Refund Net cash inflow after tax Keeps Old Job Takes New Job 39,000 1,109 37,891 33,000 -745 32,255 Thus, it is advisable for Joyce to take up the new job since it would leave more disposable income in her hands. Income tax Less: Earned income credit Net Tax Due /Refund 6,015 5,270 745 5,115 -4,006 1,109