Question

1. Calculate the taxes and average tax rate for a married couple family of four in the 15 percent bracket with a gross income of $63,000 (close to the national median for a family of four) with $4000 in IRA contributions, a standard deduction of $12,600, $16,200 for four exemptions and two child tax credits of $1000 each. You need to show the details of your calculations in order to receive full credit for this question. (Hint: use Table 4-3 to calculate the taxes, and refer to "Advice from a Seasoned Pro" in section 4.1d to see how the average tax rate is calculated.)

2. What is the marginal tax bracket? Explain why some taxpayers have an effective marginal tax rate as high as 40 percent? Does this mean they pay 40% of their taxable income in taxes?

Answer 1

ANSWER:

1. Calculation of Taxes and Average Tax Rate :

• S.No. Particulars Amount ($)
• Gross Income 63,000
• Less: IRA Contributions 4,000
• Less: Standard Deduction 12,600
• Less: Child tax credits for two children 2,000
• Net Income 44,40
• Tax @ 15% 6,660
• Average Tax Rate :-

=Tax / Gross Income*100

=6660 / 63000 * 100 10.57%

2.Marginal Tax Bracket :

Minimal Tax Bracket implies your salary can fall into more than one section, so more than one assessment rate can apply to your pay. Your minimal assessment rate is the most elevated section and related rate that apply to your pay.

As their Income independently or together are increasingly similar to above $ 5Lacs and so on, at that point they need to pay high negligible expense rate as 40%.

This doesn't imply that they need to pay higher assessment at the rate 40 percent. Section rate will be concern them