Estimating After-Tax Income: Impact of Halftime Work on Cash Flow

Maloney, Raabe, Young, Nellen, & Hoffman, CPAs 5191 Natorp Boulevard Mason, OH 45040 October 29, 2019 Dan and Freida Butler 625 Oak Street Corbin, KY 40701 Dear Dan and Freida, You asked me to estimate your after-tax income under the assumption that Dan will work only halftime next year. The $ 37,000 reduction in Dan's pay will be partially offset by a $ 4,000 estimated increase in the amount Freida will earn. This net $ 33,000 reduction in salary and wages will also result in a decrease Taxable IncomeCash Flow Decrease in salary and other earned income($33,000)($33,000) Decrease in Social Security and Medicare tax($2,525) Decrease in Kentucky income tax($1,320)($1,320) Decrease in Federal taxable income($31,680) Decrease in Federal income tax($6,970) After-tax decrease in cash flow($22,185) in your Kentucky income tax, Social Security tax, and Medicare tax. The net reduction in your after-tax cash flow will be approximately $ 22,185. The calculations are presented below: If you have any further questions, please call me. Sincerely, John Jones, CPA