Question

Campbell, a single taxpayer, earns $239,000 in taxable income and $3,200 in interest from an investment in State of New York bonds. (Use the U.S. tax rate schedule).

Required:

1. If Campbell earns an additional $16,500 of taxable income, what is her marginal tax rate on this income?
2. What is her marginal rate if, instead, she had $16,500 of additional deductions?

(For all requirements, do not round intermediate calculations.)

Answer 1

An individual or corporate taxpayer's marginal tax rate is not the same as the average tax rate. It represents the percentage of income tax that will be levied for every incremental dollar of taxable income earned.

a.

Total taxable income = $ 239,000 + 16,500 = $255,500

• This places him in the bracket of 35%, which becomes his marginal tax rate

b. Total Taxable income = $ 239,000 - $ 16,500 = $ 212,500

• This places him in the bracket of 35%, which becomes his marginal tax rate.

Notes:

Marginal tax rate	Single
10%	$0–$9,700
12%	$9,701–$39,475
22%	$39,476–$84,200
24%	$84,201–$160,725
32%	$160,726–$204,100
35%	$204,101–$510,300
37%	$510,301 and more