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).

Required:

If Jorge and Anita earn an additional $100,000 of taxable income, what is their marginal tax rate on this income?

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.)

Answer 1

Marginal Tax rate for anita and jorge after earning additional income:

Jorge and anita will owe 29465.50 for fedaraltax computed as follows

28457.5+28%(150000-146400)

Average tax rate =Total tax/total income=29465.5/150000=19.64%

Effective tax rate=29465/190000=15.51%

Note:Jorge and anita are currently in 28% tax bracketTheir marginal income increases up to73050 DEDUCTIONS UP TO 3600 Is 28%

Marginal rate if extra 100000 is earned

Change in tax/change in income =5818329465.5/250000-150000=29.35%

Instead If they had a deductions of 100000

Marginal tax rate=6607-5-29465.5/50000-150000=22.86