Colin and Coleen divorced in the current year. Colin is willing to pay Coleen $20,000 of alimony for five years so that she can return to school and obtain a degree. Coleen has stated that she needs no less that $20,000 after taxes and will not accept Colin's offer of alimony. Coleen is in the 15 percent tax bracket and Colin is in the 35 percent tax bracket. How much alimony must Coleen receive to have $20,000 after taxes?
What is Colin's after-tax cost of this alimony payment?

Question

Quizplus · Accepted Answer

The Answer is Coleen must receive $23,529 ($20,000/.85) before taxes to have $20,000 after taxes. This will cost Colin $15,294 [$23,529 x (1 - .35)] after taxes.

Colin and Coleen Divorced in the Current Year