Question

Caroline Krause earned a salary of $700,000.

Instructions: Enter your answers to parts a and brounded to 2 decimal places. Enter yo
a) How much Social Security tax did she pay?
Social Security tax: $
b) How much Medicare tax did she pay?
Medicare tax: $
c) What is her marginal tax rate on her federal personal income tax?
Marginal tax rate:
43400
%

Answer 1

a) The Social Security tax rate is 6.2%, but it's only applied to the first $142,800 of income (as of 2021). So, her Social Security tax would be $142,800 * 6.2% = $8,853.60.

b) The Medicare tax is 1.45% on the first $200,000 and 2.35% on anything above $200,000. So, her Medicare tax would be ($200,000 * 1.45%) + ($500,000 * 2.35%) = $2,900 + $11,750 = $14,650.

c) The marginal tax rate for federal income tax varies based on the tax bracket. For an income of $700,000, she would fall into the 37% tax bracket (as of 2021). However, this doesn't mean all her income is taxed at 37%. Only the income above $523,600 is taxed at this rate. The rest is taxed at lower rates.