A commenter asked me to work out the numbers regarding the family in my last post who make $280,000 in combined income and pays $120,000 in tuition. Tax often baffles the average citizen, so I think this is a useful exercise.
Hopefully the original commenter can post up exact demographic information. But in the meantime, I assume the following whih I believe are all reasonable assumption.
--10 exemptions (2 parents + 8 children). I assume eight children as $120,000/$15,000 average tuition = 8.
--Each parent works full time and pays for child care (i.e. camp) during the summer, giving them a small state dependent care credit and a $1200 federal credit.
--Each parent makes enough to pay the maximum amount of FICA tax, i.e. $5840. For simplicity, I assigned $180,000 to the father and $100,000 to the mother.
--No income is deferred for retirement and there are no other sources of income.
--They live in a high tax state where there is a large Jewish community. Some high tax states I can think of include New York, California, or Maryland.
--For ease, I assume no charitable contributions and no mortgage interest income, but itemized using only state tax paid. With or without additional itemization, the family gets hit with the AMT due to the number of exemptions. Additional itemization could lower the tax bill at the federal and state level. So, there could be an addition $10,000 or so more for the family. It really doesn't change the theoretical per se.
Combined Salaries: 280,000
FICA, $5840*2 11,680
Medicare, 1.45% 4,060
Federal Tax, after credit 65,286
State Tax 19,000 (varies by state, this is a fair estimate)
Take Home Pay $179,974
Take away tuition of $120,00 and this family of 10 has less than $60,000 to pay the rest of their expenses. Between rent/mortgage, food, medical care, additional childcare and camp so the parents can work, basic clothing, and utilities, I can only imagine that a large family making over a $280,000 needs a helping hand.
(If that commenter emails me at Orthonomics, a gmail account. I can adjust assumption accordingly).