Question

Jorge and Anita, married taxpayers, earn $95,000 in taxable income and $42,500 in interest from an investment in city of Heflin bonds.how much federal tax will they owe? What is their average tax rate? What is their effective tax rate? What is their current marginal tax rate?

Answer 1

Note: I have considered Federal Tax rate for 2017

Jorge and Anita will owe $15,227.50 in federal income tax this year computed as follows:

$15,227.50 = $10,452.50 + 25% ($95,000 − $75,900).

Jorge and Anita’s average tax rate is 16.03 percent.

Average Tax Rate = Total Tax / Taxable Income = $15,227.50/$95,000 = 16.03%

Jorge and Anita’s effective tax rate is 11.07 percent.

Effective tax rate =Total Tax / Total Income = $15,227.50 / ($95,000 + $42,500) = 11.07%

Jorge and Anita are currently in the 25 percent tax rate bracket. Their marginal tax rate on increases in income up to $58,100 ($153,100 - $95,000)