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Bob is taxed at a 21% tax rate for his federal taxes. Last year, he reduced his taxable income by contributing $550 per biweekly paycheck to his tax deferred retirement account and $90 per biweekly paycheck to his FSA. How much did he reduce his annual federal taxes by if his gross biweekly pay is $2,460?

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ivycoveredwalls

Answer:

$133.80

Step-by-step explanation:

First, if Bob did not make those contributions, his tax would be 21% of the full $2,460.  That is (.21)(2460) = $516.60.

But those contributions reduce his taxable income to

$2,460 - $640  (the $640 is $550 + $90)

His reduced taxable income is $1820.  Now his tax is 21% of $1820, which is (.21)(1820) = $382.20

The amount of tax Bob saved is the difference between the two tax amounts.

$516.00 - $382.20 = $133.80

Bob saved $133.80 in taxes.  Be like Bob.  :-)

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