Question

Susan is single with a gross income of $120,000 and a taxable income of $98,000. In calculating gross income, she properly excluded $10,000 of tax-exempt interest income. (2019)

What is her total tax?

What is her marginal tax?

What is her average tax rate?

What is her effective tax rate?

Answer 1

Total tax:

Tax payable on $98,000 taxable income = $14,382.50 + ($98,000 - $84,200) X 24% = $17,694.50

Marginal tax:

She is in 24% tax bracket. She is required to pay $0.24 in taxes for every additional $1 earned.

Average tax:

Average tax = Tax payable/ taxable income = $17,694.50 / $98,000 = 18.0556%

Effective tax rate:

Her effective tax rate = Taxes payable/ (Taxable income + Tax-exempt income)

= $17,694.50 / ($98,000 + $10,000) = 16.3838%