Scot and Vidia, married taxpayers, earn $95,000 in taxable income and $5,000 in

Question

Scot and Vidia, married taxpayers, earn $95,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. (Use the U.S. tax rate schedule for married filing jointly). (Do not round intermediate calculations. Round your answer to 2 decimal places.) a. If Scot and Vidia earn an additional $83,500 of taxable income, what is their marginal tax rate on this income? arginal tax rate b. How would your answer differ if they, instead, had $83,500 of additional deductions? Marginal tax rate

Explanation / Answer

a. Total taxable income = $95,000 + $5,000 = $100,000

Less: Standard deduction @24% = ($24,000)

$76,000

**Now this net taxable income falls in the tax bracket of 12% (In year 2018 ->$19,040 to $77,400 -12%]

Calculation of marginal tax rate on additional taxable income of $83,500:

Additional taxable income = $83,500

Less: Standard deduction@24% = $20,040

$63,460

Now total net taxable income is $139,460 (= $76,000 + $63,460)

*Now this net taxable income falls in the tax bracket of 22% (In year 2018->$77,400 to $165,000- 22%]

Now of this $63,460, $1400 (= $77,400 - $76,000) falls in tax bracket of12% and remaining $62,060 ( = $63,460 - $1400) falls in tax bracket of 22%.

Marginal tax rate on $83,500 = ($1400 x 12% + $62,060 x 22%) ÷ $63,460 = 21.77%

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