Question

Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bonds. (Use the U.S. tax rate schedule). Required: If Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income

Answer 1

Answer: 35%

Step-by-step explanation:

First and foremost, we've to calculate the amount that will be taxed on $400000 which will be:

= $46628.50 + ($400000-$204100) × 35%

= $46628.50 + ($400000-$204100) × 0.35

= $46628.50 + $68565

= $115193.5

When earns an additional $15,000 of taxable income, this means her total taxable income will be:

= $400,000 + $15,000

= $415000

Therefore, the tax amount on $415000 will be:

= $46628.5 + ($415000 - $204100) × 35%

= $46628.5 + ($415000 - $204100) × 0.35

= $120443.5

Marginal Tax rate will then be calculated as:

= change in Tax / change in Taxable income

= ($120443.5 - $115193.5) / ($415000 - $400000)

= $5250 / $15000

= 35%