Question

Jorge and Anita, married taxpayers, earn $140,000 in taxable income and $45,000 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 $102,500 of taxable income, what is their marginal tax rate on this income?
2. What is their marginal rate if, instead, they report an additional $102,500 in deductions?

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

Answer 1

Ans: Dear Student, As no year mentioned therefore we will assume it to be current one

Tax Year = 2020

Status= married filing Jointly

Tax liability of taxable income= 140,000

Tax liability= $9,235+22% of {140,000-80,250}

=> $9,235+ 22% of 59,750

=> $9,235+ 13,145

=> 22,380

If Jorge and Anita earn an additional $102,500 of taxable income then tax liability would be as:

=> $29,211+24% of {242,500-171,050}

=> $29,211+ 24% of 71,450

=> $29,211+ 15,719

=> $44,930

Marginal Tax rate= Change in tax liability/change in taxable income

=> {44,930-22,380}/{242,500-140,000}

=> 22,550/102,500*100

=> 22%

b). Marginal tax rate if reported an additional 102,500 in deductions

tax liability if deductions of 102,500= {140,000-102,500}

=>37,500

=> $1,975+12% of {37,500-19,750}

=> $1,975+ 12% of 17,750

=> $1,975+ 2,130

=> $ 4,105

Marginal Tax rate- {22,380-4,105}/{140,000-37,500}

=> 18,275/102,500

=> 17.82%