Quote:
Originally Posted by Lubicon
Is there a quick way to determine how much of a wage increase would be necessary to financially offset the tax paid on a taxable benefit? Is it as simple as x=y ? ie increase salary by the amount of the taxable benefit? Or is there more to it? (ie tax paid on increased wage in addition to tax on taxable benefit). Am I overthinking this?
End goal is to keep take home pay the same after introduction of taxable benefit.
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It wouldn't quite be X=Y - the increase would actually only need to be a bit lower.
Say your tax rate is 40%.
If your taxable benefit is $15,000, you're out of pocket $6,000 in taxes.
To net the $6,000 lower take-home, your wage increase would actually need to be $10,000 (40% taxes would be $4,000, so net take home on the increase is $6,000).
Of course there's taking into account deductions, marginal taxes, etc, but simplistically, that's how it could work out.
Wage increase = taxes paid on your taxable benefit divided by (1 - your tax rate)
As a check, multiply the wage increase by your tax rate to see the taxed you'd pay on the increase. Subtract it from the wage increase to get your net. That should equal the taxes paid on your taxable benefit.