Based on the amounts of taxable income provided, compute the federal income tax payable in 2018...
Based on the amounts of taxable income provided, compute the federal income tax payable in 2018 on each amount assuming the taxpayers are married filing a joint return. Also, for each amount of taxable income, compute the average tax rate and the marginal tax rate.
a. taxable income of $72,000
b. taxable income of $90,000
c. taxable income of $380,000
d. taxable income of $690,000
This is all the information that was given.
Homework Answers
First let me tell you the Income Tax brackets for married, jointly filing (for taxes due in 2018) based on the Taxable Income (TI); are as follows
Upto $19050 = 10% of TI
$19051 - $77400 = $1905 + 12% of TI in excess of $19050
$77401 - $165000 = $8907 + 22% of TI in excess of $77400
$165001 - $315000 = $28179 + 24% of TI in excess of $165000
$315001 - $400000 = $64179 + 32% of TI in excess of $315000
$400001 - $600000 = $91379 + 35% of TI in excess of $400000
$600001 or more = $161379 + 37% of TI in excess of $600000
Now, based on the above tax brackets, we can compute the tax liability for all the cases. Also, for the average tax, we need to divide the total tax by the total income; and for Marginal tax rate, we need to divide the incremental tax by the incremental income.
A. Taxable Income = $72000
Tax Payable = $1905 + 12% of ($72000 - $19050) = $8259
Average Rate of Tax = $8259 / $72000 = 11.47%
Marginal Rate of Tax = 11.47% (same as average rate if tax in this case)
B. Taxable Income = $90000
Tax Payable = $8907 + 22% of ($90000 - $77400) = $11679
Average Rate of Tax = $11679 / $90000 = 12.98%
Marginal Rate of Tax = ($11679 - $8259) / ($90000 - $72000) = 19%
C. Taxable Income = $380000
Tax Payable = $64179 + 32% of ($380000 - $315000) = $84979
Average Rate of Tax = $84979 / $380000 = 22.36%
Marginal Rate of Tax = ($84979 - $11679) / ($380000 - $90000) = 25.28%
D. Taxable Income = $690000
Tax Payable = $161379 + 37% of ($690000 - $600000) = $194679
Average Rate of Tax = $194679 / $690000 = 28.21%
Marginal Rate of Tax = ($194679 - $84979) / ($690000 - $380000) = 35.39%
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