Question

Problem 5-43 (LO. 2,5) Bertha is considering taking an early retirement offered by her employer. She would receive $3,000 per month, indexed for inflation. However, she would no longer be able to use the company's health facilities, and she would be required to pay her hospitalization insurance premiums of $8,000 each year. Bertha and her husband will file a joint return and take the standard deduction. She currently receives a salary of $55,000 a year. If she retires, she will spend approximately $300 less each month for commuting and clothing. Bertha and her husband have other sources of income and are in (and will remain in the 22% marginal tax bracket. Her income tax for the current year was $8,875. She currently pays Social Security and Medicare taxes of 7.65% on her salary, but her retirement pay would not be subject to this tax. According to Bertha, she and her husband could live well if her after-tax retirement income was at least 50% of her current income. Determine what her disposable income is currently and what it will be if she retires. Then, determine if it will result in an increase or decrease in her disposable income. If required, round your answers to the nearest dollar. If the amount is zero, enter "O". Disposable Income Now Retired Salary/retirement 55,000 $ 36,000 Reduced commuting and clothing costs $ 3,600 $ Social Security and Medicare tax $ 4,208 $ Income tax (22%) 8,875 सी Medical insurance $ 8,000 Disposable income associated with employment Less: Disposable income associated with retirement Decrease in disposable income

Answer 1

As per IRS, Security taxes after retirement, the social will not be charged. However, the paid can be gross income, medical insurance premium taken as deduction from Subjected to the following: • Maxim for obtaining the deductions, we should itemise the earnings. Any medical premium or costs paid in excess of 10% of adjusted gross income can be available as deduction In the given is $36,000 rase, gross income adjustes 10% Amounts to 3600 $. a $36000 is. Hence, elegible premium in excen as deduction.

8000 Actual Less lot premium paid of Adjusted income (3600) 4400 for deduction computation cf taxas per 2018 rules gross income Deduction for premium 36,000 > (4400) Les 31600

Computation of other income Current tax $8875 - standard folaat. (4454) bracket Tax @2a4. - 4421 In come potion Subiected to 22% = 4421 x 100 22 = $20,095 Hence total income could be - 38700 +20095 = 58,7958. other income - 58795- 55000 = 3795

In the question, since other income a her husband was not mentioned We Can not compute the exact tax amount. However, since she would be in 22% tex bracket, minimum tax would be 4454. Disposable income NOW Salary 55000 other income 3795 Reduced Costs (3600) Socid Security tax (4208) Re fired 36000 3795 Income tax (8875) (4454) Minimum Medical insurance - 42,12 (8000) 27 341 Minimum Decrease in income - 7 14,77$ She Can retire, as she eans more than soy..

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