Question

Jorge and Anita, married taxpayers, earn $140,500 in taxable income and $46,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule for married filing jointly). Required: If Jorge and Anita earn an additional $103,000 of taxable income, what is their marginal tax rate on this income? What is their marginal rate if, instead, they report an additional $103,000 in deductions? (For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Note:Solution is provided on the basis of 2019 federal income tax brackets(for taxes due in April 2020).

Marginal tax rate = change in tax ÷ change in taxable income

1)If Jorge and Anita earn an additional $103,000 of taxable income, what is their marginal tax rate on this income?

Particulars	Amount in $
New tax=$28,675 + 24% (243500- $168,400)	46,699
Old tax=$9,086 + 22% (140500-$78,950)	22,627
Change in tax	24,072
Change in Taxable income	103000
Marginal tax rate	23.37%

2)What is their marginal rate if, instead, they report an additional $103,000 in deductions?

Particulars	Amount in $
New tax= $1,940 +12%(37500-$19,400)	4,112
Old tax(calculated above)	22,627
Change in tax	-18,515
Change in Taxable income	-103000
Marginal tax rate	17.97%

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