The amount of tax paid less by Caroline as per the new taxation policies will be $950 over her annual salary of $42,200 after the taxes are applied assuming deductions being made.
The calculation of tax saved by Caroline will be done on the basis of comparing the taxation rates of both the policies after taking the changes into account.
The formula for calculation of tax will be done as follows when the taxes are charged on flat basis under the old policy,
[tex]\rm Income\ Tax= Salary\ x\ Rate\ of\ Taxation\\\\\rm Income\ Tax= 42200\ x\ {\dfrac{25}{100}\\\\\\\\\\\\\\rm Income\ Tax= \$10550[/tex]
The taxation for the first $20000 as per the new policy will be
[tex]\rm Income\ Tax\ Threshold= 20000\ x\ \dfrac{15}{100}\\\\\rm Income\ Tax= \$3000[/tex]
Calculating further taxation,
[tex]\rm Income\ Tax= 22200\ x\ \dfrac{30}{100}\\\\\rm Income\ Tax= \$6600[/tex]
So, total taxation as per the new policy will be $9600. Now comparing the taxation of old scheme with new scheme, we get,
[tex]\rm Income\ Tax\ Savings= Old\ Taxation - New\ Taxation\\\\\rm Income\ Tax\ Savings=10550-9600\\\\\rm Income\ Tax\ Savings=950[/tex]
So, the total taxes saved are $950 when the taxation rate changes.
Hence, the correct statement is that tax savings of $950 is possible when the authorities change the taxation rates to such slab rates by Caroline.
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