Question

Ch Chuck, a single taxpayer, earns $86,000 in taxable income and $24,750 in interest from an investment in City of Heflin bonds. (Use the U.S. taxrate schedule) Required: a. If Chuck earns an additional $41,000 of taxable income, what is his marginal tax rate on this income? b. What is his marginal rate if, instead, he had $41000 of additional deductions? (For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places.) a Marginal tax rate b Marginal tax rate

Answer 1

1	Marginal Tax rate
	Marginal Tax rate is the tax rate on each additional dollar of income earned. This rate
	increases with the increase in income.
a	If Chuck earns an additional $41000 of taxable income, his marginal tax rate on this
	income will be 32%.
b	If he had additional $41000 of additional deductions, his marginal tax rate will be 24%.
	This additional deduction will reduce his taxable income and thus marginal tax rate.
2	Federal tax owed by Scot and Vidia
	Taxable Income	$266,000
	Tax on first $ 19050 @10%	$1,905
	Tax on next $58350 @12%	7002
	Tax on next $87600 @22%	19272
	Tax on last $101,000 @24%	24240
	Total tax owed	$52,419
	Average tax rate
	Total tax owed	$52,419
	Taxable income	$266,000
	Average tax rate (52419/266000)	19.71%
	Effective tax rate
	Total tax owed	$52,419
	Total income(266000+8900)	$274,900
	Effective tax rate (52419/274900)	19.07%
	Marginal tax rate	24%