Bob Hotchkins is in the 28 percent tax bracket.A tax-exempt employee benefit with a value of 500 would have a tax-equivalent value of:
a) $694
b) $528
c) $500
d) $360
IS C CORRECT ANSWER?THANK YOU:)))
NO.
500 = A - A x 0.28 = A (1-.28) = .72A
so,
A = 500/0.72 = 694
What does this have to do with psychology?
To determine the tax-equivalent value of a tax-exempt employee benefit, you need to calculate the amount of income Bob Hotchkins would need to earn in order to achieve the same after-tax benefit.
To do this, follow these steps:
1. Identify the tax bracket: Bob is in the 28% tax bracket.
2. Calculate the tax rate: The tax rate represents the portion of income that Bob would have to pay in taxes. In this case, it is 28% or 0.28.
3. Determine the after-tax benefit: The tax-exempt employee benefit has a value of $500, which means Bob receives the full $500 without any tax liability.
4. Calculate the tax-equivalent value: To calculate the tax-equivalent value, divide the after-tax benefit by (1 - tax rate). In this case, it would be $500 / (1 - 0.28) = $500 / 0.72 = $694.44.
So, based on the calculation, the tax-equivalent value of the tax-exempt employee benefit is approximately $694. Therefore, option a) $694 is the correct answer.