Question

Marginal tax rates   Partner​ A, a single​ taxpayer, is one of two partners in a small business. As​ such, she receives​ pass-through income that is taxed at her personal tax rates. After all adjustments and deductions have been​ made, including the​ 20% qualified business income​ deduction, she is preparing to calculate her taxes owed for the year.

Using the tax rate schedule given here​,

$0 to    $9,525    $0    +   (10%    amount over   $0)
9,525 to    38,700    953    +   (12%   amount over   9,525)
38,700 to    82,500    4,454    +   (22%   amount over   38,700)
82,500 to    157,500    14,090    +   (24%    amount over   82,500)
157,500 to    200,000    32,090    +   (32%    amount over   157,500)
200,000 to    500,000    45,690    +   (35%    amount over   200,000)
500,000 to        150,690    +   (37%    amount over   500,000)
           +       amount over   

a. Find the marginal tax rate for the following levels of sole proprietorship earnings before​ taxes:

$ 16 000; $ 61900​; $ 88100 ​; $ 148000 ​; $ 246000 ; $ 454000 ; and $ 1.1million.

b. Plot the marginal tax rates​ (measured on they-​axis) against the pretax income levels​ (measured on the x-​axis). Explain the relationship between these variables.

Answer 1