Question

work (Chapter 1)6 Chuck, a single taxpayer, earns $75,000 In taxable income and $10,000 in interest from an Investment in City of Heflin bonds. (Use the U.S. taxrate schedule) Required: a. If Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income? b. What is his marginal rate it, instead, he had $40,000 of additional deductions? For all requirements, do not round Intermediate calculations. Round your answers to 2 decimal places) < Prev 6of9llį Next > 3 0

Answer 1

Ans:

Chuk is a single Tax Payers

Taxable Income=$75,000

Interest Income but exempted Income=$10,000

Tax Bracket for Single tax Payer’s-2018

$38700-$82,500=$4453.50 +22% on Excess over $38,700

So If chuck earns Taxable Income of $75,000

Tax Liability=$4453.50+22%($75,000-$38,700)

=$4453.50+(22% *36,300)=$4453.50 + $7986=$12,439.50

a) If chuck earns an additional of $40,000 what is his marginal tax rate?

Now, His Income =$75,000+$40,000=$115,000

Tax Bracket=$82,500-$157,500=$14089.50+24% for excess of $82,500

Tax liability=$14089.50+24%($115,000-$82,500)

=$14089.50+$7800=$21889.50

Marginal Tax Rate=Change in Tax /Change in Taxable Income

i.e =New Total Tax-Old Total Tax/New Taxable Income-Old Taxable Income

=$21889.50-$12439.50/$115,000-$75,000=$9450/$40,000=23.625% =23.63% (if rounded off the decimals)

b)

If chuck has $40,000 additional deductions

Taxable Income=$75,000-$40,000=$35,000

Tax Bracket=$9525-$38,700= $952.50 +12% for more than $9525

Tax liability=$952.50+12 %($35,000-$9525)=$952.50+12%*$25475

=$952.50+$3057=$4009.5

Marginal Tax Rate=Change in Tax /Change in Taxable Income

i.e =New Total Tax-Old Total Tax/New Taxable Income-Old Taxable Income

=$4009.5-$12439.50/$40,000-$75,000=-$8430/$35000=-24.0857%=-24.09% (if rounded off the decimals)