Scot and Vidia married taxpayers eam 96 Use the US tax rate

Scot and Vidia, married taxpayers, eam $96, (Use the U.S tax rate schedule for married filing jointly) (Do not round intermediote calculations. Round your answer to 2 decimal places.) a·lf Scot and Vida earn an additional $91,250 of taxable income, what is their marginal tax rate on this income? 0.5 points Skipped eBook Print References b. How would your answer differ if they, instead, had $91,250 of additional deductions?

Solution

a. Computation of marginal tax rate: (Tax rates as per 2017 tax year)
Formula for marginal tax rate = Change in tax / Change in taxable income
Here, we need to calculate tax on income before and after additional income:
Taxable Income before additional income= $96,500
Tax on $96,500 = 10,452.50 + (96,500-75,900)*25%
= 10,452.50+5,150 = $15,602.50

Taxable Income after additional income = 96,500 + 91,250 = $187,750
Tax on $187,750 = 29,752.50 + (187,750-153,100)*28%
= 29,752.50+9,702 = $39,454.50

Marginal tax rate = (39,454.50 - 15,602.50) / (187,750 - 96,500)
= 23,852 / 91,250 = 26%

b. If instead they had additional deduction of $91,250
Then, Marginal tax rate = Change in tax / Change in taxable income
Here, we need to calculate tax on income after additional deduction:
Taxable Income after additional deduction= $96,500- 91,250 = $5,250
Tax on $5,250 = 10%*5,250 = $525
Marginal tax rate = (15,602.50-525) / (96,500-5,250)
= 15,077.50/ 91,250 = 16.5%