Q. We are considering moving to work in Dallas in the near future. If you could please give me an idea after all kinds of mandatory and basic deductions from different levels of government and probably insurance companies, what would the net be for annual salaries of 70 k and 50k US with 2 dependents?
We are now living in Canada. I spotted your column from an online news service.
---L.H., Canada
A. According to tax planner, a tool in Quicken 5, a family with two children, a joint income of $120,000, and standard deductions would pay about $23,800 in federal income taxes. The family would have a marginal income tax rate of 31 percent and an average tax rate of 19.8 percent. The "marginal tax rate" is economist talk for the rate you pay on your highest dollar of income. For 1996, taxable income over $96,900 is taxed at 31 percent.
In addition, you would pay federal employment taxes of 7.65 percent on the income subject to taxation. That would be all of the $50,000 salary and $62,700 of the $70,000 or a total of $8,622. For 1996 the Social Security wage base maximum is $62,700. That amounts to another 7.2 percent. Income over that amount is subject to the Medicare tax which is 1.45 percent for an employee. That would be another $106 in taxes.
There is no state income tax in Texas so you would avoid the significant burdens that residents of some states must pay. The only other deductions would be employer based expenses such as health insurance, possible section 125 deductions for child care, medical expenses, etc. These vary a great deal from employer to employer.
In addition, you could reduce your tax bill if your employers had a 401k plans and you might also reduce your tax bill if you bought a house. How much of a reduction could you achieve? The same tax planner in Quicken indicates that your Federal income tax bill would fall to $20,273 if you saved ten percent of your income in a 401k and would fall still further to $17,674 if your homeownership deductions were $18,000. That's about what you would have on the purchase of a $200,000 house. That would be an above average house in Dallas or just about anywhere in Texas. Your joint income would be about
twice the median family income for households with two earners.
Finally, if you want another approximation of living costs, try a site on the world wide web: "
http://www.homefair.com" This site allows you to put in two locations and compare the cost of living and it includes Canada. If you have an income of $120,000 in Edmonton, Alberta, for instance, the Homefair service calculates you would need just over $135,000 in Dallas. Please note that none of these estimates are presented on clay tablets. A great deal with depend on choices you make.
Q. Soon I will have my vehicle paid for and plan on putting away the current payment for a future vehicle. Other than putting the money into a savings account, is there another option that would give a better yield?
--- K.P., Minneapolis, MN
A. A paid off car usually means an older car since the average car loan is now over 48 months. One implication is that your horizon for saving is relatively short--- two or three years. You might also use the same account to build a balance to pay for the larger repair and replacement bills that come with higher mileage cars.
Solutions? Here are two. First, bypass the savings account route because the average bank is paying a lot less for savings than the average money market mutual fund. Bank money market accounts, for instance, are paying just over 3 percent while money market mutual funds are paying nearly 5 percent.
Ironically, many banks also have money market mutual funds. If yours has one, the most convenient thing to do would be to arrange for a monthly automatic transfer to a new money market fund account. That way you can move cash easily between the mmf and your regular checking account.
Otherwise, you'll need to open a money market mutual fund account at a separate institution, choosing from the funds that have smaller minimum starting balances.
Another option would be to start an account with a short term fund like Strong Advantage. It has an average maturity of one year so the net asset value per share can fluctuate but the yield is high enough to justify the risk. Recently, for instance, the fund was yielding about 6.25 percent. The minimum initial investment in this fund is $2,500. (Tel: 800-368-1030)
File Name: 961007MO
Dallas Morning News file date: open
Universal Press Syndicate file date: 10/07/96---MON
©
Dallas Morning News, Universal Press Syndicate, 1996
