Question

Question 4: Effective versus Marginal Tax Rate (25 points) Consider the following marginal tax table: DI Over $0 $ 9,526 $38,701 $82,501 $157,501 $200,001 $500,001 Single But not above $9,525 $38,700 $82,500 $157,500 $200,000 $500,000 Over SO $19,051 $77,401 $165,001 $315,001 $400,001 $600,001 Married But not above $19,050 $77,400 $165,000 $315,000 $400,000 $600,000 Tax Rate 10% 12% 22% 24% 32% 35% 37% The Excel sheet Income Tax lists two household incomes (one single and one married). Answer the following questions: 1. What is the tax liability for the single and married household? 2. What is the marginal tax rate for the single and married household? 3. What is the effective tax rate for the single and married household?

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

B C D E F Nm 7000 1 Tax liability $7,819.50 $23,999.00 Taxable income $54,000.00 $146,000.00 Single household Married household Marginal tax rate | Effective tax rate 22% 14.48% 22% 16.44%

Cell reference -

Taxable Income Tax liability Marginal tax rate Effective tax rate Single household 54000 = 10%*9525+12%*(38700-9525)+22%*(54000-38700) 0.22 =D4/C4 Married household 146000 =10%*19050+12%*(77400-19050)+22%* (146000-77400) 0.22 =D5/05

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