Question

Jorge and Anita, married taxpayers, earn $139,000 in taxable income and $43,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule for married filing jointly).

Required:

1. If Jorge and Anita earn an additional $101,500 of taxable income, what is their marginal tax rate on this income?
2. What is their marginal rate if, instead, they report an additional $101,500 in deductions?

(For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places.)

If taxable income is over:	But not over:	The tax is:
$           0	$    9,700	10% of taxable income
$    9,700	$ 39,475	$970 plus 12% of the excess over $9,700
$ 39,475	$ 84,200	$4,543 plus 22% of the excess over $39,475
$ 84,200	$160,725	$14,382.50 plus 24% of the excess over $84,200
$160,725	$204,100	$32,748.50 plus 32% of the excess over $160,725
$204,100	$510,300	$46,628.50 plus 35% of the excess over $204,100
$510,300	—	$153,798.50 plus 37% of the excess over $510,300

Schedule Y-1-Married Filing Jointly or Qualifying Widow(er)

If taxable income is over:	But not over:	The tax is:
$           0	$ 19,400	10% of taxable income
$ 19,400	$ 78,950	$1,940 plus 12% of the excess over $19,400
$ 78,950	$168,400	$9,086 plus 22% of the excess over $78,950
$168,400	$321,450	$28,765 plus 24% of the excess over $168,400
$321,450	$408,200	$65,497 plus 32% of the excess over $321,450
$408,200	$612,350	$93,257 plus 35% of the excess over $408,200
$612,350	—	$164,709.50 plus 37% of the excess over $612,350

Schedule Z-Head of Household

If taxable income is over:	But not over:	The tax is:
$           0	$ 13,850	10% of taxable income
$ 13,850	$ 52,850	$1,385 plus 12% of the excess over $13,850
$ 52,850	$ 84,200	$6,065 plus 22% of the excess over $52,850
$ 84,200	$160,700	$12,962 plus 24% of the excess over $84,200
$160,700	$204,100	$31,322 plus 32% of the excess over $160,700
$204,100	$510,300	$45,210 plus 35% of the excess over $204,100
$510,300	—	$152,380 plus 37% of the excess over $510,300

Schedule Y-2-Married Filing Separately

If taxable income is over:	But not over:	The tax is:
$           0	$    9,700	10% of taxable income
$    9,700	$ 39,475	$970 plus 12% of the excess over $9,700
$ 39,475	$ 84,200	$4,543 plus 22% of the excess over $39,475
$ 84,200	$160,725	$14,382.50 plus 24% of the excess over $84,200
$160,725	$204,100	$32,748.50 plus 32% of the excess over $160,725
$204,100	$306,175	$46,628.50 plus 35% of the excess over $204,100
$306,175	—	$82,354.75 plus 37% of the excess over $306,17

Answer 1

Marginal tax rate = (Change in Tax Payable / Change in Taxable income) x 100 Schedule Y-1-Married Filing Jointly or Qualifying Widow(er) a) Only the taxable income shall be considered for determining applicable tax rate while calculating tax payable for the tax year. But not over: The tax is: Taxable income given Add: Additional taxable income Total taxable income $139,000 $101,500 $240,500 If taxable income is over: $ 0 $19,400 $78,950 $168,400 $321,450 $408,200 $612,350 $19,400 10% of taxable income $78,950 $1,940 plus 12% of the excess over $19,400 $168,400 $9,086 plus 22% of the excess over $78,950 $321,450 $28,765 plus 24% of the excess over $168,400 $408,200 $65,497 plus 32% of the excess over $321,450 $612,350 $93,257 plus 35% of the excess over $408,200 $164,709.50 plus 37% of the excess over $612,350 Tax payable on current income Tax payable on revised income Change in tax payable Change in taxable income Marginal Tax Rate $22,297.0 ($9,086+($139000-$78950)x22%] $46,069.0 ($28,765+($240500-$168400)x24%] $23,772 ($46069 - $222971 $101,500 (Given] 23.42% [($23772 / $101500) x 100] b) Taxable income given Less: Additional deductions Total taxable income $139,000 $101,500 $37,500 Tax payable on current income Tax payable on revised income Change in tax payable Change in taxable income Marginal Tax Rate $22,297.0 ($9,086+($139000-$78950)x22%] $4,112.0 ($1,940+($37500-$19400)x12%] $18,185.0 ($4112 - $22297] $101,500 (Given] 17.92% [(-$18185 / $101500) x 100]