Read the scenario.
Jorge lives in a country that uses a progressive tax system in which his taxable income is taxed at a specific percentage. In 2016, Jorge made $90,000 and was taxed at 25 percent. He is due for a $5,000 raise in 2017. At that time, his tax bracket will change to 30 percent.
Which is true regarding Jorge’s financial situation after his raise?
A After the raise, Jorge will take home $5,000 more per year.
B After the raise, Jorge will take home $5,000 less per year.
C After the raise, Jorge will take home $1,000 more per year.
D After the raise, Jorge will take home $1,000 less per year.
D After the raise, Jorge will take home $1,000 less per year.
That is your answer.
To answer this question, we need to calculate Jorge's tax amount before and after the raise.
In 2016, Jorge's taxable income was $90,000 and he was taxed at a 25% rate. So his tax amount in 2016 would be $90,000 * 0.25 = $22,500.
After the raise in 2017, Jorge's taxable income would be $90,000 + $5,000 = $95,000. He will be taxed at a 30% rate. So his tax amount in 2017 would be $95,000 * 0.30 = $28,500.
Now, let's compare the tax amounts before and after the raise:
- Before the raise: $22,500
- After the raise: $28,500
To find out how much Jorge will take home after the raise, we subtract the tax amount from his total income:
- Before the raise: $90,000 - $22,500 = $67,500
- After the raise: $95,000 - $28,500 = $66,500
Comparing the two numbers, we can see that Jorge will take home $1,000 less per year after his raise.
Therefore, the correct answer is D) After the raise, Jorge will take home $1,000 less per year.