Question

During​ 2015, the Smiths and the Jones both filed joint tax returns. For the tax year ended December​ 31, 2015, the​ Smiths' taxable income was $ 113,000​, and the Jones had total taxable income of $ 56,500.

            Taxable Income

Tax Rates       Joint Returns

10%    $0 to $18,150

15%    $18,151 to $73,800

25%    $73,801 to $148,850

28%    $148,851 to $226,850

33%    $226,851to $405,100

35%    $405,101 to $457,600

39.6% Over $457,600

a. Using the federal tax rates given in Table 1.2 for married couples filing joint​ returns, the taxes for the Smiths is ​$__________ (Round to the nearest​ dollar.)

The taxes for the Jones is ​$___________(Round to the nearest​ dollar.)

b. The ratio of the​ Smiths' to the​ Jones' taxable income is _________(Round to two decimal​ places.)

The ratio of the​ Smiths' to the​ Jones' taxes is _______ (Round to two decimal​ places.)

c.What does this demonstrate about the federal income tax​ structure?  ​

(Choose the best answer​ below.)

A.Those who earn higher incomes pay a higher proportion of their income in taxes.

B.Those who earn higher incomes pay a lower proportion of their income in taxes.

C.Those who earn lower incomes pay a higher proportion of their income in taxes.

D.Everyone pays the same proportion of their income in taxes.

Answer 1

a. Using the federal tax rates given in Table 1.2 for married couples filing joint​ returns, the taxes for the Smiths is​ $19,963 (Round to the nearest​ dollar.)

The taxes for the Jones is ​$7,568 (Round to the nearest​dollar.)

Explanation:

Tax liability of Smiths:

On first $18,150 @ 10% : $1,815

From $18,151 to $73,800 @ 15% : $8,347.50

From $73,801 to $113,000 @ 25% : $9,800

Total tax liability = $1,815 + $8,347.50 + $9,800 i.e. $19,962.50

Tax liability of Jones:

On first $18,150 @ 10% : $1,815

From $18,151 to $56,500 @ 15% : $5,752.50

Total tax liability = $1,815 + $5,752.0 i.e. $7,567.50

b. The ratio of the​ Smiths' to the​ Jones' taxable income is 2:1 Round to two decimal​ places.)

The ratio of the​ Smiths' to the​ Jones' taxes is 2.64:1 (Round to two decimal​ places.)

Explanation:

Ratio of incomes = $113,000 / $56,500 i.e. 2:1

Ratio of taxes = $19,963 / $7,568 i.e. $2.64

c.What does this demonstrate about the federal income tax​structure? 

A.Those who earn higher incomes pay a higher proportion of their income in taxes.

Explanation: The Smiths income is twice the income that of Jones but they have to pay the tax in a higher ratio. This indicates that the tax liability also increases with the increased income in higher proportion.