Marginal Benefit Calculation Setup Examples

This article provides an example of how you might set up compensation items to perform a marginal tax calculation.

Let's understand this with a use case:

You've got a benefit that's 20% of salary from $10k to $50k, then 30% of salary from $50k to $80k, and 45% of salary from $80k up and you want to calculate a tiered benefit like this based on salary.

So you need to set up the following Compensation Items:

1. 20% of Salary with an expense cap of $10k ($50k * 20%). This calculation does not consider the fact that you want no expense from 0 - 10k, so you need 2 more compensation items to reverse the "floor". This one is posted to the expense account.
2. 20% of Salary with an expense cap of $2k. This is the amount of expense you need to reverse out of the calculation in #1. This one is posted to a statistical account.
3. (100%) of #2. When posted to the expense account, it reverses the "floor" for this calculation out of the expense account.

In summary, #1 posts an expense of 10k, and 3 posts an expense of 2k, resulting in a net expense of $8k for the first tier of your calculation. Now, you will need to create 2 more sets of similar calculations to represent your next 2 tiers.