Question

Suppose that Cho is preparing to file her taxes. She is single and currently lives in Denver. Cho earned $200,000 in taxable income in 2022. She reviews the following table, which shows the IRS tax rates for a single taxpayer in 2022.

On Annual Taxable Income... The Tax Rate Is... (Percent)
Up to $10,275 10.0
From $10,275 to $41,775 12.0
From $41,775 to $89,075 22.0
From $89,075 to $170,050 24.0
From $170,050 to $215,950 32.0
From $215,950 to $539,900 35.0
Over $539,900 37.0

Based on the IRS table, Cho calculates that her marginal tax rate_____is when her annual taxable income is $200,000.

Answer 1

Cho's marginal tax rate is 32%, as her annual taxable income of $200,000 falls within the tax bracket of $170,050 to $215,950, according to the 2022 tax rate table for a single taxpayer.

Step-by-step explanation:

Cho's marginal tax rate is 32% when her annual taxable income is $200,000.

The marginal tax rate is the rate at which the last dollar of income is taxed. In Cho's case, since she earned $200,000, we look at the tax brackets in the provided table to find where her last dollar falls. Here's how it works:

• Up to $10,275 is taxed at 10%
• From $10,275 to $41,775 is taxed at 12%
• From $41,775 to $89,075 is taxed at 22%
• From $89,075 to $170,050 is taxed at 24%
• Any income from $170,050 to $215,950 is taxed at 32%
• Because Cho's income is $200,000, which falls into this bracket, her marginal tax rate is 32%.

This marginal rate applies only to the income within that bracket, not to her entire income. Thus, Cho's last dollar of income, and any additional dollar she would earn up to $215,950, would be taxed at this rate.