Question

Use the marginal tax rate chart to answer the question. Tax Bracket Marginal Tax Rate $0–$10,275 10% $10,276–$41,175 12% $41,176–$89,075 22% $89,076–$170,050 24% $170,051–$215,950 32% $215,951–$539,900 35% > $539,901 37% Determine the effective tax rate for a taxable income of $175,000. Round the final answer to the nearest hundredth.

Answer 1

the effective tax rate for a taxable income of $175,000 is approximately 21.02%.

Explanation:

Let's break down the income into the corresponding tax brackets:

The first $10,275 is taxed at a rate of 10%.

Tax on this portion: $10,275 * 0.10 = $1,027.50

The income between $10,276 and $41,175 is taxed at a rate of 12%.

Tax on this portion: ($41,175 - $10,276) * 0.12 = $3,710.88

The income between $41,176 and $89,075 is taxed at a rate of 22%.

Tax on this portion: ($89,075 - $41,176) * 0.22 = $10,656.98

The income between $89,076 and $170,050 is taxed at a rate of 24%.

Tax on this portion: ($170,050 - $89,076) * 0.24 = $19,862.88

The income between $170,051 and $175,000 is taxed at a rate of 32%.

Tax on this portion: ($175,000 - $170,051) * 0.32 = $1,577.44

Now, sum up all the taxes paid:

$1,027.50 + $3,710.88 + $10,656.98 + $19,862.88 + $1,577.44 = $36,836.68

The effective tax rate is calculated by dividing the total tax paid by the taxable income:

Effective tax rate = Total tax paid / Taxable income

Effective tax rate = $36,836.68 / $175,000 = 0.21024 (rounded to the nearest hundredth)