Scot and Vidia, married taxpayers, earn $191,500 in taxable income and $5,000 in

Question

Scot and Vidia, married taxpayers, earn $191,500 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 $91,250 of taxable income, what is their marginal tax rate on this income?

marginal tax rate_____%

b. How would your answer differ if they, instead, had $91,250 of additional deductions?

marginal tax rate_____%

Table 2. Married Filing Joint Taxable Income Tax Brackets and Rates, 2017

Married Filing Jointly or Qualifying Widow(er)

Taxable Income

Tax Rate

$0—$18,550

10% of taxable income

$18,551—$75,300

$1,855.00 plus 15% of the amount over $18,550

$75,301—$151,900

$10,367.50 plus 25% of the amount over $75,300

$151,901—$231,450

$29,517.50 plus 28% of the amount over $151,900

$231,451—$413,350

$51,791.50 plus 33% of the amount over $231,450

$413,351—$466,950

$111,818.50 plus 35% of the amount over $413,350

$466,951 or more

$130,578.50 plus 39.6% of the amount over $466,950

Table 2. Married Filing Joint Taxable Income Tax Brackets and Rates, 2017

Married Filing Jointly or Qualifying Widow(er)

Taxable Income

Tax Rate

$0—$18,550

10% of taxable income

$18,551—$75,300

$1,855.00 plus 15% of the amount over $18,550

$75,301—$151,900

$10,367.50 plus 25% of the amount over $75,300

$151,901—$231,450

$29,517.50 plus 28% of the amount over $151,900

$231,451—$413,350

$51,791.50 plus 33% of the amount over $231,450

$413,351—$466,950

$111,818.50 plus 35% of the amount over $413,350

$466,951 or more

$130,578.50 plus 39.6% of the amount over $466,950

Explanation / Answer

Answer

a ) tax payable on income 191500 = 10367.5 + 25 % * ( 191500 -75301 )

= 39417.25

if scot & vidia earns additional taxable income = 91250

total taxable income = 191500 + 91250

= 282750

tax payable on income 282750 = 51791.50 + 33 % * (282750 - 231451)

= 68720.17

marginal tax rate = 68720.17 - 39417.25 / 282750 - 191500

= 32 %

b )

the additional deduction = 91250

taxable income = 191500 - 91250

= 100250

tax payable on income 100250 = 10367.5 + 25 % * ( 100250 - 75301 )

= 16604.75

margin tax rate = ( 16604.75 - 39417.25 ) / ( 100250 - 191500 )

= 25 %

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