Joe has an annual income of $80,000. His employer pays all ofhis health insurance premiums.
Joe expects to incur $2,000 in unreimbursed medical expenses forthe year. He pays an average
federal tax rate of 22%. In addition, his state has a flat 3%income tax rate. Thus, his total
income taxes paid will be equal to 25% of his taxable income. Joeexpects to deduct $15,000
from his annual income for income tax purposes.
a. How much income tax will Joe pay in total (state plusfederal)?
b. How much FICA (payroll) tax will Joe pay? How much will hisemployer pay? What
fraction of the total payroll tax can be attributed toMedicare?
c. Joe decides to redirect $2,000 of his salary to a flexiblespending account. This
contribution is considered a salary reduction, which means itreduces both the payroll
taxes and the income taxes Joe needs to pay. What are the totaltaxes Joe needs to pay
now? How much money has he saved?
