Question

Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bond (Use the U.S. tax rate schedule Required: a. If Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income? b. What is her marginal rate if, instead, she had $15,000 of additional deductions? (For all requirements, do not round intermediate calculations.) Marginal tax rate Marginal tax rate b.

I keep getting the wrong answer

Answer 1

Campbell, a single tax payer, so we consider the Schedule X single tax bracket is as follows:

a)Campbell's taxable income = $400,000 + $2,000 + $15,000

=$417,000

So, Campbell come under the tax bracket of taxable income above $204,100 and not over $510,300

Tax = $46,628.50 + 35% excess over $204,100

= $46,628.50 + 35%*($417,000 - $2 04,100)

=$46,628.50 + $74,515

= $121,143.50

Marginal Tax rate = $121,143.50/$417,000*100

= 29%

b)Campbell's taxable income = $400,000 + $2,000 + $15,000

=$417,000

There is a additional deduction $15.000

Campbell's taxable income = $417,000 - $15.000 = $402,000

So, Campbell come under the tax bracket of taxable income above $204,100 and not over $510,300

Tax = $46,628.50 + 35% excess over $204,100

= $46,628.50 + 35%*($402,000 - $2 04,100)

=$46,628.50 + $69,265

= $115,893.5

Marginal Tax rate = $115,893.5/$402,000*100

= 28.83%