Question

Problem Set #3 Due in section on Thursday, March 12, or Friday, March 13, 2020. No probleeds will be oped for conditaffer iw ou Friday, March 13. NOTE: To ensure proper grading, write your answers in the area indicated. 1. (3.5 points) Assume that the taxable income Serena Williams pulls in from endorsements, tournament prizes, and other sources during 2019 was $20,000,000. For simplicity, let's assume that we have already subtracted the standard deduction and also that she files her income taxes separately so that we can continue use the table of tax brackets we have already been using at lecture. a. What is Serena Williams' marginal tax rate for 2019. Briefly explain. 2019 federal tax brackets rate single filers 10% $0 to $9,700 12 $9,700 to $39,475 22% $39,475 to $84,200 24% $84,200 to $160,725 32% $160,725 to $204,100 35% $204,100 to $510,300 37% more than $510,300 Serena Williams' marginal tax rate for 2019 b. Calculate the amount of income tax that Serena Williams will owe for 2019. Show your work. Round your answer to the nearest penny. amount of income tax Serena Williams will owe for 2019 - Given her taxable income listed above, what will the average tax rate for Serena Williams' federal income tax be? Show your work. Express your answer as a percentage and round that percentage to two decimal places. Serena Williams' average tax rate for 2019 Page 1 of

Answer 1

(a) Marginal tax rate is the tax bracket in which the individual's income falls, which in this case is 37%.

(b)

Tax payable ($) = 9,700 x 10% + (39,475 - 9,700) x 12% + (84,200 - 39,475) x 22% + (160,725 - 84,200) x 24% + (204,100 - 160,725) x 32% + (510,300 - 204,100) x 35% + (20,000,000 - 510,300) x 37%

= 970 + 29,775 x 12% + 44,725 x 22% + 76,525 x 24% + 43,375 x 32% + 306,200 x 35% + 19,489,700 x 37%

= 970 + 3,573 + 9,839.5 + 18,366 + 13,880 + 107,170 + 7,211,189

= 7,364,987.50

(c)

Average tax rate = Tax payable / Taxable income = $7,364,987.5 / $20,000,000 = 0.3682 = 36.82%