James, an executive, receives a $600,000 payment under a golden parachute agreement. James's base amount from Silver, Inc., is $140,000. What is the total tax James must pay, assuming a 39.6% individual tax rate?
A)$0
B)$92,000
C)$210,000
D)$329,600
E)None of the above

Question

Quizplus · Accepted Answer

The total payment that James will receive is $600,000. However, he has a base amount of $140,000. This means that the excess amount is $460,000 ($600,000 - $140,000). 
The 39.6% tax rate applies to the excess amount of the golden parachute payment. Thus, James would be paying $182,160 in taxes ($460,000 x 39.6%). 
Therefore, the total tax that James must pay is the tax on the excess payment plus the tax on his base amount. The tax on his base amount is $55,440 ($140,000 x 39.6%). 
Thus, the total tax that James must pay is $237,600 ($182,160 + $55,440). However, he will receive a credit for the tax paid on his base amount, which is $55,440. 
Therefore, the net tax that James must pay is $182,160 ($237,600 - $55,440). Thus, the correct answer is D.

James, an Executive, Receives a $600,000 Payment Under a Golden