Answer:
Liam's effective tax rate is 16.05%.
Explanation:
To answer this question, we will need to use the 2021 federal income tax brackets for a single individual.
a) To find Liam's total taxes due, we first need to calculate his taxable income by subtracting the standard deduction from his gross income:
Taxable income = $125,000 - $12,550 (standard deduction) = $112,450
Using the tax brackets, we can calculate Liam's federal income tax:
The first $9,950 is taxed at 10% = $995.00
The next $30,250 ($40,200 - $9,950) is taxed at 12% = $3,630.00
The next $45,400 ($85,600 - $40,200) is taxed at 22% = $9,988.00
The remaining $26,850 ($112,450 - $85,600) is taxed at 24% = $6,444.00
Total taxes due = $995.00 + $3,630.00 + $9,988.00 + $6,444.00 = $20,057.00
Therefore, Liam's total taxes due are $20,057.00.
b) Liam's marginal tax rate is the rate at which his last dollar of income is taxed. In this case, his last dollar of income is taxed at 24%, which is the highest tax bracket he falls into.
c) Liam's effective tax rate is the percentage of his gross income that he pays in taxes. To calculate this, we divide his total taxes due by his gross income:
Effective tax rate = ($20,057.00 / $125,000) x 100% = 16.05%
Therefore, Liam's effective tax rate is 16.05%.