Terry Harrison is single and works for the Dade County animal control department. He claims no allowences and his employer computes federal income taxes using the percentage method. Dade County withholds $85.80 in federal income tax from his weekly salary, which exceeds $645. What is Terry's weekly salary? Answer is one of the following: A. $680.80 B. $595.75 C. $665.15 D. $660.60
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1 Answer

The US taxation system appears to put earnings into bands.

Without access to the IRS taxation tables for the right tax year I can only suggest a way forward to answer this problem.

The percentage method appears to work by charging a percentage r% of the taxable weekly wage or salary and then adding on a fixed amount $f to give the tax withholding. We need to look at the band applicable to over $645 but under the next highest band. We also need the excess figure $E which reduces the tax liability.

The calculation goes like this: start with weekly salary W and find out which band it belongs to. Then subtract the excess E. We have W-E. Apply the tax rate of r%: (W-E)r/100 then add the fixed amount f: (W-E)r/100+f. This is the tax withholding. For this problem we have to work backwards: first locate the relevant band for >$645 to give us f, r% and E.

So we take $85.80 and subtract $f to give us 85.80-f dollars=(W-E)r/100. Next, we multiply by 100 to give us 100(85.80-f). This gives us (W-E)r. We divide by r next: 100(85.80-f)/r to get W-E. Finally we add E to get the weekly pay: 100(85.80-f)/r+E. 

EXAMPLE

Let’s suppose r=12%, f=$18.30, E=$254.

100(85.80-18.30)/12+254=$816.50.

If you substitute values from tax tables for the relevant tax year you should be able to calculate the weekly pay.

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