Question

1. In 2019, Taxpayer (“T”) is a single, 65 year-old individual who is a U.S. citizen. T turned 65 in 2019.    T receives $18,000 of social security income in 2019 (the first year T received Social Security Benefits). Also, T received $6,000 of interest income from a municipal bond in both 2018 and 2019. On June 1, 2018, T took a job with a multi-national corporation which paid T $5,000 per month. As a condition of the job, T is required to work overseas, in the country of Austria, and T did in fact work in Austria for 214 days (From June 1 – December 31) in 2018. T is offered to continue to work (still in Austria and still for $5,000 per month) for seven additional months (from January 1 until the end of July, which is 211 days) in 2019, at which point T’s position would terminate. T is trying to decide whether T wants to continue to work for seven months in 2019 or quit on January (These are T’s only transactions during 2018 and 2019).

1. What is T’s Gross Income in 2019 if T continues to work through July of 2019?

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2. What is T’s Gross Income in 2019 if T does NOT continue to work in 2019?  

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3. Excluding the effects of the payroll tax and any credits, What is the economic benefit to T of continuing to work for 7 months in 2019 (meaning how much total extra money, after tax, will T have as a result of continuing to work in 2019)?

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Answer 1

T Turns 65 in 2019

Social Security Income received first time in 2019= $18,000

Interest income from municipal bonds in 2018 & 2019= $6,000

Salary from job from 1st June 2018= $5,000 p/m (continues till end of July 2019 if he continues to work)

Part A of Question

T's gross income in 2019 if he continues to work= Salary from Job from 1st jan to July end 2019 + Social security income + Interest income in municipal bonds

Salary from job from 1st Jan to 31st July= $5000 pm X 7 months= $35,000

Social Security income for 2019= $18,000

Interest Income from municipal bonds= $ 6000

Therefore, T's gross income in 2019 if he continues to work= $35,000+$18,000+$6,000= $59,000

Part B of Question

T's gross income in 2019 if he does not work= Social security income + Interest income in municipal bonds

T's gross income in 2019 if he does not work= $18,000+$6,000= $24,000

Part C of Question

Economic benefit to T of continuing to work for 7 months in 2019 would be = Gross income of T if he works - Gross Income of T if he does not work

Therefore Economic benefit of T= $ 59,000 - $24,000= $35,000

T would benefit from salary that he would receive in 2019. In both A & B scenarios he would continue to receive money from municipal bonds and social security. the differential component is salary which he would receive only if he continues to work