Question

Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds (Use the U.S. tax rate schedule for married filing jointly). Required: o. If Jorge and Anita earn an additional $100,000 of taxable income, what is their marginal tax rate on this income? b. What is their marginal rate if, instead, they report an additional $100,000 in deductions? For all requirements, round your answers to 2 decimal places.) Marginal tax rate Marginal tax rate

Answer 1

Answer of A)

1) Jorge and Anita, married taxpayers

2) They earn $150,000 in taxable income

3) Hence, tax amount is =$9,086+22% X ($150,000-$78,950) =$24,717

4) They earn an additional $100,000 of taxable income

5) Hence, tax amounts on total taxable income of $250,000 is =$28,765+24% X ($250,000-$168,400) =$48,349

6) Hence, increase in tax i.e. change in tax=$48,349-$24,717=$23,632

7) Hence, increase in taxable income i.e. change in taxable income = $250,000-$150,000=$100,000

8) Hence, their marginal tax rate on additional income=sl. no. 6/sl. no. 7 X 100 =$23,632/$100,000 X 100 =23.63%

Hence, from the above it can be concluded that their marginal tax rate is 23.63% when they earn an additional $100,000 of taxable income.

Answer of B)

1) Jorge and Anita, married taxpayers

2) They earn $150,000 in taxable income

3) Hence, tax amounts to is =$9,086+22% X ($150,000-$78,950) =$24,717

4) They reported an additional $100,000 in deduction

5) Hence, tax amounts on total taxable income of $50,000 is =$1,940+12% X ($50,000-$19,400) =$5,612

6) Hence, increase in tax i.e. change in tax=$5,612-$24,717-$5612 = (-) $19,105

7) Hence, decrease in taxable income i.e. change in taxable income=$50,000-$150,000 = (-) $100,000

8) Hence, their marginal tax rate=sl. no. 6/sl. no. 7 X 100 = (-) $19,105 / (-) $100,000 X 100 =19.11%

Hence, from the above it can be concluded that their marginal tax rate is 19.11% when they reported an additional $100,000 in deduction.