Scot and Vidia married taxpayers earn 410000 in taxable inco

Scot and Vidia, married taxpayers, earn $410,000 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). a. If Scot and Vidia earn an additional $89,750 of taxable income, what is their marginal tax rate on this income? b.How would your answer differ if they, instead, had $89,750 of additional deductions?

Solution

Using the Federal Tax Rate - 2017. Taxable Income = $410,000 Tax Payable = $52,222.50 + 33% X ($410,000 - 233,350) Tax Payable = $52,222.50 + $58,294.50 Tax Payable = $110,517 Answer a. Additional Income = $89,750 Taxable Income = $410,000 + $89,750 = $499,750 Tax Payable = $131,682 + 39.60% X ($499,750 - 470,700) Tax Payable = $131,682 + 11,503.80 Tax Payable = $143,185.80 Marginal Tax Rate = ($143,185.80 - $110,517) / ($499,750 - $410,000) Marginal Tax Rate = 36.40% Answer b. Additional Deductions = $89,750 Taxable Income = $410,000 - $89,750 = $320,250 Tax Payable = $52,222.50 + 33% X ($320,250 - 233,350) Tax Payable = $52,222.50 + $28,677 Tax Payable = $80,899.50 Marginal Tax Rate = ($80,899.50 - $110,517) / ($320,250 - $410,000) Marginal Tax Rate = 33%