Reference no: EM133004356

Nyla's employer has recently offered a retirement savings account benefit to all their employees. With this benefit, Nyla can contribute a portion of her income (within limits) to her employer-sponsored profit-sharing retirement plan. These contributions will reduce her current taxable income on a tax-deferred basis. Nyla wants to contribute 10% of her current annual income of $12,000 toward the retirement account. But as a precautionary measure, she wants to know the tax implication(s) of her investment before making any final decision.

Total income: $18,015
Cashier income: $12,000
Uber/Lyft: $6,000
Interest earnings (savings): $15
Retirement plan contributions: $1,200
Total Tax withheld: $600
Standard deduction: $12,400
Qualified business income expenses (Uber/Lyft): $275

American Opportunity tax credit (up to $2,500 per student and is available for education expenses from her first four years of higher education if her gross income is $80,000 or less)

2021 Federal Income Tax Brackets and Rates

Tax rate            Single

10%              $0 to $9,875

12%             $9,876 to $40,125

22%             $40,126 to $85,525

24%             $85,526 to $163,300

Problem 1: Use the information provided above to help Nyla determine her taxable income and her tax obligation for 2021.