Course › 5.1 Taxes, Net Income, and Budgeting › Free response
Free response · 5.1 Taxes, Net Income, and Budgeting
Exam-style personal-finance task: read a household's situation and write a recommendation. Suggested time 12–13 minutes.
FRQ 2 — Personal finance (household recommendation)
The Nguyen household: Linh earns a $58,000 salary paid semi-monthly; her partner Tomas is a self-employed electrician earning about $45,000 a year. Linh's employer offers a retirement plan with pretax contributions and pays 60% of a family health premium; Linh currently contributes nothing to the plan. Tomas sets aside nothing for taxes during the year and was surprised by a large bill last April. They have one child, age 8, pay mortgage interest, and donate to a local shelter. They want to start saving $500 a month but say 'there's nothing left after bills.'
(A) Explain why Tomas faced a surprise tax bill while Linh did not, using the framework's description of how income and payroll taxes are paid. 1 pt
(B) Identify TWO deductions or credits the Nguyens likely qualify for and explain how each affects their federal income tax differently. 1 pt
(C) Recommend ONE change to Linh's pay-stub deductions that would help the household start saving, and explain the trade-off using the concepts of pretax deductions and net pay. 1 pt