Determine the average tax rate and the marginal tax rate for each of the followi

Question

Determine the average tax rate and the marginal tax rate for each of the following instances: a. A married couple filing jointly with taxable income of $44,700. b. A married couple filing jointly with taxable income of $205,775 c. A married couple filing separately, one spouse with taxable income of $44785 and the other with $57118. d. A single person with taxable income of $87,707 e. A single person with taxable income of $317,953. f. A head of household with taxable income of $97492 g. A qualifying widow with taxable income of $29,238 h. A married couple filing jointly with taxable income of $19.208 (For all requirements, when computing average tox rate, use the Tax Tables for taxpayers with taxable income under $100,00o and the Tax Rate Schedules for those with taxable income above $100,000. Round "Average tax rate" to 1decimal place.) Complete this question by entering your answers in the tabs below. Req d to h a. A married couple filing jointly with taxable income of $44,700. b. A married couple filing jointly with taxable income of $205,775

Explanation / Answer

Formula sheet

A B C D E F G H I J 2 3 a) 4 5 Calculation of tax liability: 6 Taxable income $44,700 7 Using the 2018 tax rate table for married filling jointly, this income falls in the slab of $19,051 to $77,400. 8 9 Income Tax liability =$1905+12% of amount over $19,050 10 $4,983.00 11 12 Hence federal income tax is $4,983.00 13 14 Calculation of average tax rate: 15 Average Tax rate can be calculated using the following formula: 16 Average Tax rate =Total Tax paid / Total income 17 18 Using the following data: 19 Total Income $44,700 20 Tax liability $4,983 21 22 Average Tax rate =Total Tax paid / Total income 23 11.15% 24 25 Hence average tax rate is 11.15% 26 27 Calculation of marginal tax rate: 28 A marginal tax rate is rate of tax paid on an additional dollar of income. 29 Taxable income $44,700 30 Using the 2018 tax rate table for married filling jointly, this income falls in the slab of $19,051 to $77,400. 31 32 Income Tax liability =$1905+12% of amount over $19,050 33 Hence additional income will be taxed at the rate of 12%. 34 35 Thus marginal tax rate is 12.00% 36 37 b) 38 39 Calculation of tax liability: 40 Taxable income $205,775 41 Using the 2018 tax rate table for married filling jointly, this income falls in the slab of $165,001 to $315,000. 42 43 Income Tax liability =$28179+24% of amount over $165,000 44 $37,965.00 45 46 Hence federal income tax is $37,965.00 47 48 Calculation of average tax rate: 49 Average Tax rate can be calculated using the following formula: 50 Average Tax rate =Total Tax paid / Total income 51 52 Using the following data: 53 Total Income $205,775 54 Tax liability $37,965 55 56 Average Tax rate =Total Tax paid / Total income 57 18.45% 58 59 Hence average tax rate is 18.4% 60 61 Calculation of marginal tax rate: 62 A marginal tax rate is rate of tax paid on an additional dollar of income. 63 Taxable income $205,775 64 Using the 2018 tax rate table for married filling jointly, this income falls in the slab of $19,051 to $77,400. 65 66 Income Tax liability =$28179+24% of amount over $165,000 67 Hence additional income will be taxed at the rate of 24%. 68 69 Thus marginal tax rate is 24.00% 70 71 c) 72 73 Taxable income of 1st spouse $44,785 74 Taxable income of 2nd spouse $57,118 75 76 Using the 2018 tax rate table for married filling saparately, this income falls in the slab of $38,701 to $82,500. 77 78 Income Tax liability for 1st spouse =$4453.50+22% of amount over $38,700 79 $5,792.20 =4453.5+22%*(44785-38700) 80 81 Income Tax liability for 2nd spouse =$4453.50+22% of amount over $38,700 82 $8,505.46 =4453.5+22%*(57118-38700) 83 84 Total Tax liabilities $14,297.66 85 Total Income $101,903 86 87 Average Tax rate =Total Tax paid / Total income 88 14.03% 89 90 Hence average tax rate is 14.0% 91 92 Since for both person, additional income is taxed at 22%, 93 therefore the marginal tax rate is 22% 94 95 d) 96 97 Calculation of tax liability: 98 Taxable income $87,707 99 Using the 2018 tax rate table for individual, this income falls in the slab of $82,501 to $157,500. 100 101 Income Tax liability =$14089.50+24% of amount over $82,500 102 $15,338.68 103 104 Hence federal income tax is $15,338.68 105 106 107 Average Tax rate =Total Tax paid / Total income 108 17.49% 109 110 Hence average tax rate is 17.5% 111 112 113 Since additional income will be taxed at the rate of 24%. 114 115 Thus marginal tax rate is 24.00% 116

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