Percent on taxable income and percent on income made to pay for taxes?

Question

I want to be left with $5K after taxes. 33% is the total tax rate.

33% tax on $5K is $1.5K.

But, If I wanted to be left with $5K, to say that I'd have to make a total of $6.5K to pay the taxes doesn't calculate correctly because if I made 6.5K, the tax rate of 33% would apply to that total, which leaves me with $4,355. So, the 1.K seems to shortchange the taxes, I'd otherwise pay.

I calculate I'd have to make $7,426.69 to be left with $5K. 33% of the 7K figure is roughly 5K.

Yet, it seems when I read about taking tax breaks that would mean I wouldn't have to pay tax on $5K, third-parties just seem to say I'd save $1.5K. Is this just laziness or ignorance on their part, or am I wrong by trying to take into account what I want to be left with not just what I'd pay on the amount.

And is there an economic term that accounts for this?

If there is, why do business/finance writers just say you'd save 1.5K on 5K of income, not that you'd save 2.5K to be left with 5K?

To bostonianinmo:

Yes, I entered the wrong number in the question. I had been editing the question to try to make in the 1000 character limit and I edited out the correct 33% tax on 5K, which is 1.65 K. At one point I was using 30%, which would make the tax 1.5K on 5K. So, you are correct that I had the wrong number.

In any case, the rest of the question remains. The business writers and such will say that the tax savings is 1.65K, which is true, but they never say the larger number, which you would need to make in order to HAVE 5K.

This was all in regard to an FSA, a health care tax break. If you have 5K in the FSA and spend it, and that expense would be there FSA or no, than you would actually be saving appx. 2.5K. But, they always count the 1.65K only.

Also, if there is an economic term for the compounding effect as shown in the 2.5K tax figure, what is it?

So, apart from the math error, or at the least edit error, the rest of the question remains unanswered.

Thanks.

Answer 1

At 33%, the tax on $5,000 is $1,650, not $1,500.

If you want $5,000 after tax with a tax rate of 33%, divide $5,000 by .67 to get $7,462.69, as you have noted.

The rest of your math is just wrong. That's the economic term: math error.