Question

During​ 2015, the Smiths and the Jones both filed joint tax returns. For the tax year ended December​ 31, 2015, the​ Smiths' taxable income was

$137,000​,

and the Jones had total taxable income of

$68,500.

a. Using the federal tax rates given in Table​ 1.2,

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​, for married couples filing joint​ returns, calculate the taxes for both the Smiths and the Jones.

b. Calculate and compare the ratio of the​ Smiths' to the​ Jones' taxable income and the ratio of the​ Smiths' to the​ Jones' taxes. What does this demonstrate about the federal income tax​ structure?

TABLE​ 1.2: Tax Rates and Income Brackets for Joint Returns​(2015)
	Taxable Income
Tax Rates	Joint Returns
​10%	​$0 to​ $18,150
​15%	​$18,151 to​ $73,800
​25%	​$73,801 to​ $148,850
​28%	​$148,851 to​ $226,850
​33%	​$226,851 to​ $405,100
​35%	​$405,101 to​ $457,600
​39.6%	Over​ $457,600

Answer 1

a). Tax for the Smiths = 10%*18,150 + 15%*(73,800-18,151) + 25%*(137,000-73,801) = 25,962.10

Tax for the Jones = 10%*18,150 + 15%*(68,500-18,151) = 9,367.35

b). Ratio of taxable income = Smiths' income/Jones' income = 137,00/68,500 = 2.00

Ratio of taxes = Smith's tax/Jones' tax = 25,962.10/9,367.35 = 2.77

The difference in the two ratios demonstrates the progressive nature of the federal income tax structure where with increasing income, the tax rate slabs for each progressive income bracket keeps increasing.