There is a complicated formula that would determine how much extra funds Oprah would have to give them so that the bonus + tax given to the recipient would result in zero tax to the recipient. It goes something like this:Bonus $5,000 X 20% tax = 1,000Tax on $1,000 X 20% = 200.00Tax on $200 X 20% = 40.00Tax on $40 X 20% = 8Tax on $8 X 20% = 1.60And on and on until you get to zero.You may think it's complicated, but I would argue it's very simple. Using your 20% rate, the grossed-up amount is simply 5000/(1-.20) = $6250.Ira
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