A single person earns a gross biweekly salary of $840 and claims 5 exemptions. How will federal taxes affect his net pay?
a. Federal taxes will not affect the net pay.
b. Net pay will increase $11 from the gross pay.
c. Net pay will decrease $11 from the gross pay.
d. Net pay will decrease $13 from the gross pay.
Please select the best answer from the choices provided
Answer (2)
Identify the salary range: $840 falls in the $840-$860 range.
Find the tax deduction for 5 exemptions: The table shows a deduction of $11.
Calculate the net pay: Net Pay = $840 - $11 = $829.
Determine the effect: Federal taxes decrease the net pay by $11, so the answer is C .
Explanation
Understanding the Problem The problem provides a table of federal tax deductions based on salary range and number of exemptions. We need to determine how federal taxes affect the net pay of a person earning a gross biweekly salary of $840 and claiming 5 exemptions.
Finding the Salary Range First, we need to locate the correct salary range in the table. The person earns $840, which falls into the salary range of $840 - $860.
Finding the Correct Exemption Column Next, we find the column corresponding to 5 exemptions.
Determining the Federal Tax Deduction The value at the intersection of the $840 - $860 row and the 5 exemptions column is 11. This means the federal tax deduction is $11.
Calculating the Net Pay To find the net pay, we subtract the federal tax deduction from the gross salary: Net Pay = Gross Salary - Federal Tax Deduction. So, Net Pay = $840 - $11 = $829.
Determining the Effect of Federal Taxes Now, we determine how federal taxes affect the net pay. The gross pay is $840, and the net pay is $829. The difference is $840 - $829 = $11. Since the net pay is less than the gross pay, the federal taxes decrease the net pay by $11.
Final Answer Therefore, the correct answer is that the net pay will decrease $11 from the gross pay.
Examples
Understanding how taxes affect your paycheck is crucial for financial planning. For instance, if you're budgeting for monthly expenses, knowing your net pay (after taxes) helps you accurately determine how much money you have available. Tax deductions, like the exemptions mentioned in the problem, reduce your taxable income, leading to a lower tax liability. This concept applies to various real-life scenarios, such as estimating your tax refund, deciding whether to contribute to a retirement account, or understanding the financial impact of a new job with a different salary and benefits.
The federal taxes will reduce the net pay from a gross salary of $840 by $11, leading to a net pay of $829. Therefore, the selected answer is option C. This shows the impact of claiming exemptions on tax deductions and net income.
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