Question

Campbell, a single taxpayer, earns $438,000 in taxable income and $2,760 in interest from an investment in State of New York bonds. (Use the U.S. tax rate schedule). Required: If Campbell earns an additional $16,900 of taxable income, what is her marginal tax rate on this income

Answer 1

Currently (assuming a 2020 tax schedule), Campbells tax liability = $47,367.50 + [35% x ($438,000 - $207,350)] = $128,095

municipal bonds are not taxed by the federal government, so Campbell will not pay any taxes on the interests earned on the State of New York bonds.

if he earns an additional $16,900, then his tax liability will be:

$47,367.50 + [35% x ($454,900 - $207,350)] = $134,010

his marginal tax rate = 35%