Question

Jorge and Anita, married taxpayers, earn $142,500 in taxable income and $50,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule for married filing jointly). Required: a. If Jorge and Anita earn an additional $105,000 of taxable income, what is their marginal tax rate on this income? b. What is their marginal rate if, instead, they report an additional $105,000 in deductions? (For all requirements, do not round intermediate calculations. Round your answers to 2 decimal pla QUIOCESI a. Marginal tax rate Marginal tax rate

Answer 1

An individual or corporate taxpayer's marginal tax rate is not the same as the average tax rate. It represents the percentage of income tax that will be levied for every incremental dollar of taxable income earned.

Tax rate for married filling jointly for 2019-20 are as follows:

Married, filing jointly

Tax rate	Taxable Income range	Taxes owed
10%	$0 – $19,400	10% of taxable income
12%	$19,401 – $78,950	$1,940 plus 12% of any amount over $19,400
22%	$78,951 – $168,400	$9,086 plus 22% of any amount over $78,950
24%	$168,401 – $321,450	$28,765 plus 24% of any amount over $168,400
32%	$321,451 – $408,200	$65,497 plus 32% of any amount over $321,450
35%	$408,201 – $612,350	$93,257 plus 35% of any amount over $408,200
37%	$612,351 or more

Since the interest on investment in city of Helfin bonds is not taxable, the AGI would be = $ 142500, therefore using the third row in the table above ,

Federal Tax = 9086 plus 22% of any amount over $78,950

a. If there is an additional income of $105000, total AGI would be = $247500, therefore 4th slab would b applicable. Therefore marginal tax rate would be = 24%

b. If there is an additional deduction of $105000, total AGI would be = $37500, therefore 2nd slab would b applicable. Therefore marginal tax rate would be = 12%