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What is your total annual federal income tax, NJ state income tax, and FICA taxes? What is your average tax rate (combined for all three taxes)?

Words: 641
Pages: 3
Subject: Business

Free cash flow is the amount of cash that a company has left over after it has paid for all of its expenses. In other words, it is the amount of money that can be reinvested in new project or paid out to investors without having to expand operations or running down its existing operations. Discretionary income is equivalent for individuals. Discretionary income is defined as income available for spending after

subtracting taxes and essential expenses to maintain an individual’s current standard of living. In this assignment, you will be asked to think through your personal spending and how you might construct a budget after you graduate. You will need to consider both required expenses (e.g. taxes, loans, housing costs, etc.), savings, and discretionary spending. According to the US Department of Education, the average salary of a Stillman School of Business finance major three years after graduation was about $65,6001. Assume that is the salary you will make after graduation. Answer the following questions based on the lifestyle you’d like to live after graduation.

  1. How much will you pay for health care each year2?
  2. How much do you plan to save for retirement each year3?
  3. What is your taxable income for federal income taxes, NJ state income taxes, and FICA?
  4. What is your total annual federal income tax, NJ state income tax, and FICA taxes? What is your

average tax rate (combined for all three taxes)?

  1. What will be your monthly take-home pay (after health care, retirement savings, and taxes)?
  2. List and estimate your essential expenses per month. These are expenses that are necessary for

living and to pay off debts. Examples include rent, student or car loan payments, car insurance,

utilities, groceries, etc.

  1. List and estimate your discretionary purchases per month. These purchases are expenses you

don’t need to survive but bring you joy. Examples include gym fees, salons, movies, streaming

services, video games, vacations, etc.

  1. List and estimate the money you plan to save for large future purchases. This savings can be for

large purchase you expect to make at some point in the future. Examples include saving for a

down payment on a house, buying a car, saving for graduate school, etc.

1 Data from the College Scorecard (https://collegescorecard.ed.gov/school/fields/?186584-Seton-Hall-University)

2 Seton Hall faculty in 2022 pay $136 per month for health care. You may use this number to estimate your health

care spending.

3 It’s possible that after going through the rest of the assignment, your initial retirement savings estimate was too high or too low. Budgeting is an iterative process, and you might need to tweak your answers as you go through the assignment

  1. Do you think the budget you designed is realistic? Why or why not?
  2. What did you learn from this assignment? Taxes

If you choose to live in New Jersey (or most states) after graduation you need to pay both federal income and state income taxes. In addition to income taxes, you will also pay FICA (Federal Insurance Contributions Act) taxes to fund Social Security and Medicare. These taxes will reduce your take-home pay, so it is important to think about them. Since each of the three taxes you pay (federal income, state income, and FICA) are governed by different rules, the definition of “taxable income” will vary for each tax. Each tax allows you to deduct certain amounts from your gross income before figuring the tax. These deductions lower the amount of taxable

income you have and by extension lower your tax bill. Below is a summary of the deductions you can

take under each tax:

Federal Income NJ State Income FICA

Standard Deduction4 $ 12,950 $ 1,000 $ 0

Health Care 100% 100% 100%

Retirement Savings 100% 0% 0%

Federal Income Tax Rates

(2022-Single Filers)

Tax Rate Bracket

10% $ 0- $ 9,950

12% $ 9,951-$ 40,525

22% $ 40,526-$ 86,375

24% $ 86,376-$164,925

32% $164,926-$209,425

35% $209,426-$523,600

37% $523,601 and over

FICA Tax Rates

(2022-Single Filers)

Tax Rate Bracket

7.65% $0-$147,000

1.45% $147,001-$200,000

2.35% $200,001 or ove