Final answer:
To calculate the tax owed by an individual married filing separately with a taxable income of $133,000, we use the 2021 IRS marginal tax brackets. Income is taxed at progressive rates, with each portion falling under its corresponding tax bracket. Summing up the taxed amounts from each bracket yields the total tax owed.
Step-by-step explanation:
To calculate the tax owed for a married individual filing separately with a taxable income of $133,000, we must understand how marginal tax rates work using the 2021 tax brackets. The concept of marginal tax rates is that the rate applies only to income within a certain range, and this range varies depending on filing status and taxable income.
According to the IRS tax brackets for 2021, a married individual filing separately would fall within the following brackets:
- 10% on income from $0 to $9,950
- 12% on income from $9,951 to $40,525
- 22% on income from $40,526 to $86,375
- 24% on income from $86,376 to $164,925
Here's how you would calculate the tax:
- For income up to $9,950, the tax would be 10% of $9,950.
- For income from $9,951 to $40,525, the tax would be 12% of the amount over $9,950 plus the tax from the previous bracket.
- For income from $40,526 to $86,375, the tax would be 22% of the amount over $40,525 plus the taxes from the previous brackets.
- For income from $86,376 to $133,000, the tax would be 24% of the amount over $86,375 plus the taxes from the previous brackets.
To determine the total tax owed, you would sum all these amounts. Remember, each portion of your income is taxed at the respective rate, not your entire income at the rate of your highest tax bracket. Hence, this is where the concept of marginal tax rates is crucial, as it signifies the tax rate that applies to your highest dollar of taxable income.