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Homework answers / question archive / 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

Economics

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 

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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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