1.Jason, a single taxpayer, earns $70,000 in taxable income and $7,500 in intere

Question

1.Jason, a single taxpayer, earns $70,000 in taxable income and $7,500 in interest from an investment in Dallas county bonds. Using the U.S. tax rate schedule for 2015, 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?

For each of the following, determine if the item is a tax and explain why or why not.
A) Speeding ticket
B) 2% surcharge on hotel rooms in the city of Virginia Beach
C) 3% surcharge on wages earned in the city of Akron

Bond B, issued by the Town of Blacksburg, pays a 3.5% interest rate that is fully tax-exempt. Bond C, issued by a corporation, pays interest at 6% and is entirely taxable. Bond G, issued by the U.S. government, pays interest at 5% and is entirely taxable. Bond B and Bond G have identical risk. Bond C is more risky than the other bonds. On all other dimensions (e.g., maturity) the three bonds are identical, and all three bonds trade at face value. If you invest $10,000 in Bond B, what amount of implicit tax will you pay?

Explanation / Answer

1 )

jason will owe $13428.75 in federal income tax this year computed as follows:

                     $13428.75 = $4,991.25 + 25%($70,000 - $36,250)). =

Jason average tax rate is 19.18%.

Average Tax rate = Total tax / Taxable income =13428.75 / 70000  19.18%

jason effective tax rate is 17.32 percent.

Effective tax rate =Total tax / Taxable income = 13428.75 / 77500 = 17.32%

B )

The 1 percent surcharge is a tax. The 2 percent surcharge is an earmarked tax – i.e., collected for a specific purpose. The surcharge is considered a tax because the tax payments made by taxpayers do not directly relate to the specific benefit received by the taxpayers

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