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Consider the following hypothetical personal income tax rates and brackets: Federal tax: $0
Consider the following hypothetical personal income tax rates and brackets: Federal tax: $0.01 to $50,000: 15% $50,000.01 to $100,000: 24% $100,000.01 and over: 30% Provincial tax: $0.01 to $40,000: 5% $40,000.01 to $80,000: 8% $80,000.01 to $120,000: 12% $120,000.01 and over: 15% Lijun earns $70,000 a year. She claims $10,000 a year in child care expenses. How much tax does she save each year by claiming her child care expenses? Show your work
Expert Solution
Case with no child care expense claim
Income = $70,000
Federal Tax:
15% on first $50,000:
= 0.15 × 50,000
= $7,500
24% on the remaining = 0.24 × (70000- 50000)
= $4,800
Provincial Tax
5% on first $40,000 = 0.05 × 40,000
= $2,000
8% on the remaining = 0.08 × (70000- 40000)
= $2,400
Total Tax with no child care expense claim = $7500 + $4800 + $2000 + $2400
= $ 16700
Case with child care expense claim
Taxable income = $70,000 - $10,000
= $60,000
Federal Tax:
15% on first $50,000 = 0.15 × 50,000
= $7,500
24% on the remaining $10,000 = 0.24 × 10,000
= $2,400
Provincial Tax
5% on first $40,000 = 0.05 × 40,000
= $2,000
8% on the remaining $20,000 = 0.08 × 20,000
= $1,600
Total Tax with child care expense claim = $7500 + $2400 + $2000 + $1600
= $35100
Tax Saving Done by Lijun = $16,700 - $13500
= $3200
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