Chuck a single taxpayer earns 77750 in taxable income and 29

Chuck, a single taxpayer, earns $77,750 in taxable income and $29,250 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule 2017.) (Do not round intermediate calculations. Round your answers to 2 decimal places.) a. If Chuck earns an additional $57,250 of taxable income, what is his marginal tax rate on this income? b. What is his marginal rate if, instead, he had $57,250 of additional deductions?

Solution

Tax on $77750 = 5226.25+(77750-37950)*0.25= 15176.25 a Taxable income = 77750+57250= 135000 Tax on $135000 = 18713.75+(135000-91900)*0.28= 30781.75 Marginal tax rate = (30781.75-15176.25)/(135000-77750)= 27.26% b Taxable income = 77750-57250= 20500 Tax on $20500 =932.5+(20500-9325)*0.15= 2608.75 Marginal tax rate = (15176.25-2608.75)/(77750-20500)= 21.95%