Question

Jackson, a single taxpayer, earns $150,000 in taxable income and $10,000 in interest from an investment in city of Denver Bonds. Using the U.S. tax rate schedule for year 2018, how much federal tax will he owe? What is his average tax rate? What is his effective tax rate? What is his current marginal tax rate? If Jackson earned an additional $40,000 of taxable income, what is his marginal tax rate on this income? (Round the tax rates to 2 decimal places, e.g., .12345 as 12.35%) (Use 2018 tax rate schedule)

USE 2018 TAX RATE SCHEDULE!!!!!!!!!!!!!!!!!

Answer 1

Solution:
Jackson owe federal tax is as per 2018 tax rate schedule is:
On first $9,525 @ 10%	$952.50
On next $29,175 @ 12%	$3,501.00
On next $43,800 @ 22%	$9,636.00
On balance $ 67,500 @ 24%	$16,200.00
Total	$30,289.50
Jackson Average/Effective Tax rate is ($30,289.50/$150,000)	20.19%
Jackson current marginal tax rate is	24.00%
(it is the highest tax rate for a tax payer whose income fall in such tax bracket as per tax rate schedule. In this case it fall in tax rate bracket 24% of $82,500 - $157,500)
If Jaction earned additional $40,000 taxable income which goes up to $ 190,000 which is in tax bracket of 32% of $157,500 - $200,000	32.00%