Scot and Vidia, married taxpayers, earn $92,500 in taxable income and $5,000 in

Question

Scot and Vidia, married taxpayers, earn $92,500 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 $70,000 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 $70,000 of additional deductions?

***Marginal tax rate %:

2016 Federal Tax Rate Schedule Schedule X-Single Schedule Z-Head of Household If taxable income is over If taxable income is over But not over $ 13,250 $ 50,400 But not over The tax iS: The tax is 10% of taxable income $92750 plus 15% of the excess over $9,275 $5,183.75 plus 25% of the excess over $37650 $18,558.75 plus 28% of the excess over $91,150 $46,278.75 plus 33% of the excess over $190,150 $119,934.75 plus 35% of the excess over $413,350 $120,529.75 plus 39.6% of the excess over $415,050 10% of taxable income $1,325.00 plus 15% of the excess over $13,250 $6,89750 plus 25% of the excess over $50,400 $26,835.00 plus 28% of the excess over $130,150 $49,41700 plus 33% of the excess over $210,800 $116,258.50 plus 35% of the excess over $413,350 $125,936.00 plus 39.6% of the excess over $441,000 0 $ 9,275 0 9,275 37,650 $ 91,150 $190,150 $413,350 $415,050 $ 37650 $ 91,150 $190,150 $413,350 $415,050 $ 13,250 $ 50,400 $130,150 $210,800 $413,350 $441,000 $ $130,150 $210,800 $413,350 $441,000 $ Schedule Y-1-Married Filing Jointly of Qualifying Widow(er) Schedule Y-2-Married Filing Separately If taxable income is over: But not If taxable income is over The tax is But not over $ 18,550 over The tax iS: 10% of taxable income $92750 plus 15% of the excess over $9,275 $5,183.75 plus 25% of the excess over $37650 $14,758.75 plus 28% of the excess over $75,950 $25,895.75 plus 33% of the excess over $115,725 $55,909.25 plus 35% of the excess over $206,675 $65,289.25 plus 39.6% of the excess over $233,475 0 $ 9,2 75 10% of taxable income $1,855.00 plus 15% of the excess over $18,550 $10,36750 plus 25% of the excess over $75,300 $29,51750 plus 28% of the excess over $151,900 $51,791.50 plus 33% of the excess over $231,450 $111,818.50 plus 35% of the excess over $413,350 $130,578.50 plus 39.6% of the excess over $466,950 $ $ 37,650 $75,950 $115,725 9,275 $ 37650 $75,950 $115,725 $206,675 $233,475 0 $ 18,550 $ 75,300 $151,900 $231,450 $413,350 $466,950 75,300 $151,900 $231,450 $413,350 $466,950 $206,675 $233,475

Explanation / Answer

Taxable Income = $92,500 Tax Payable = $10,367.50 + 25% X ($92,500 - 75,300) Tax Payable = $10,367.50 + $4,300 Tax Payable = $14,667.50 Answer a. Additional Income = $70,000 Taxable Income = $92,500 + $70,000 = $162,500 Tax Payable = $29,517.50 + 28% X ($162,500 - $151,900) Tax Payable = $29,517.50 + 2,968.00 Tax Payable = $32,485.50 Marginal Tax Rate = ($32,485.50 - $14,667.50) / ($162,500 - $92,500) Marginal Tax Rate = 25.45% (Approx.) Answer b. Additional Deductions = $70,000 Taxable Income = $92,500 - $70,000 = $22,500 Tax Payable = $1,855 + 15% X ($22,500 - $18,550) Tax Payable = $1,855 + $592.50 Tax Payable = $2,447.50 Marginal Tax Rate = ($2,447.50 - $14,667.50) / ($22,500 - $92,500) Marginal Tax Rate = 17.46% (Approx.)

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