Question

Mr. Jones is a single person who makes $45,000 in 2019. This year she paid $2,000 in student loan interest and $3,600 to her 401(k) plan at work. Calculate the following

1. Total federal tax due.

2. Average federal tax rate on taxable income.

3. Calculate the FICA tax due.

4. Assuming no state and city tax rate, what is his effective marginal tax rate?

Answer 1

Answer:

Given data:

• Mr.Jones gross income = $ 45,000
• Student loan interest = $ 2,000
• Contribution to 401(k) plan = $ 3,600

Calculate Taxable income:

Particulars	Amount	Amount
Gross income		$ 45,000
Less:
student loan interest	$ 2,000
Contribution on to 401(k) plan	$ 3,600
Adjusted gross income	($ 45,000 -$ 2,000 - $ 3,600)	$ 39,400
Less:Standard deduction		$ 12,200
Taxable income	($ 39,400 - $ 12,200)	$ 27,200

Marginal Tax Rate is 12% because of Mr.Jones taxable income is in between 9701-39475

Therefore ,Marginal Tax Rate = 12%

i)

Calculation of total federal tax due :

Particulars	Amount	Amount
Total federal tax due	=$9700*10% + (12% * [$ 27,200 - $ 9,700]) =$970+(12% * $17,500) =$970+$2,100 =$ 3,070	$ 3,070

ii)

Calculation of Average federal tax due rate :

Particulars	Amount	Amount
Average federal tax due rate	=Total federal tax due/Taxable income =$ 3,070/$ 27,200 =0.112867*100 =11.29 %(approx)	11.29%

iii)

Calculation of FICA tax:

Particulars	Amount	Amount
FICA tax	= $ 45,000*(6.2% + 1.45%) =$ 45,000*7.65% =$ 45,000*7.65/100 =$ 3,442.5	$ 3,443(approx)

iv)

Calculation of Effective marginal tax rate:

Particulars	Amount	Amount
Effective marginal tax rate	=Total tax/Gross income = ( federal tax+FICA tax)/gross income = ($ 3,070+$ 3,443)/$ 45,000 =$ 6,513/$ 45,000 =0.14473*100 =14.47%(approx)	14.47%