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 $192,700. Round the final answer to the nearest hundredth.
32.00%
21.77%
24.00%
18.57%

Answer 1

21.77%

We are given an amount of $192,700 and assigned to find it's effective tax rate .

• Effective tax rate = [(total tax payable amount)/(income)] x 100

Since we are given the amount of income,we only need to find the total tax payable amount in order to find the effective tax rate .

Total tax payable amount = sum of all the payable tax amount

Now,

According to the chart given,

• Taxable amount on a marginal line of 10% = $10,275 - $0 = $10,275
• Tax payable = 10% x $10,275 = $1,027.5

• Taxable amount on a marginal line of 12% = $41,175−$10,275 = $30,899
• Tax payable = 12% x $30,899 = $3,707.88

• Taxable amount on a marginal line of 22% = $89,075−$41,176 = $47,899
• Tax payable = 22% x $47,899 = $10,537.78

• Taxable amount on a marginal line of 24% = $170,050−$89,076 = $80,974
• Tax payable = 24% x $80,974 = $19,433.76

• Taxable amount on a marginal line of 32% = $192,700−$170,051 = $22,649
• Tax payable = 32% x $22,649 = $7,247.68

Hence,

• Total tax payable = $1,027.5 + $3,707.88 + $10,537.78 +$19,433.76 + $7,247.68 = $41,954.6

and,

• Effective tax rate = [$41,954.6/$192,700] x 100 = 21.77%

Therefore, option (2) 21.77% is the correct answer.

Answer 2

To calculate the effective tax rate we first need to determine how much tax is paid in each tax bracket for a given amount of taxable income. Here, we have a taxable income of $192,700.

Let's go step by step.

Firstly, note that $192,700 is within the $170,051 to $215,950 bracket.

For income between $0 and $10,275 (the first tax bracket), a 10% tax is paid. So the tax paid for this bracket is $10,275 * 10% = $1,027.5.

Then, between $10,276 and $41,175 (the second bracket), a 12% tax is levied. So tax paid for this section is ($41,175-$10,276+1)*12% = $3,708.

For the third bracket, which is $41,176 to $89,075, a 22% tax rate is applicable. Therefore, the tax paid here is ($89,075-$41,176+1)*22% = $10,538.

The fourth bracket is from $89,076 to $170,050, taxed at a rate of 24%. So the tax for this bracket is ($170,050-$89,076+1)*24% = $19,455.

As we noted previously, our taxable income of $192,700 falls within the fifth bracket ($170,051 to $215,950), which has a 32% tax rate. Hence, the tax paid for this amount of income is ($192,700-$170,051+1)*32% = $7,249.12.

Now, we calculate the total tax paid by summing the tax values from each bracket. Total tax paid will be $1,027.5 (from first bracket) + $3,708 (from the second bracket) + $10,538 (from the third bracket) + $19,455 (from the fourth bracket) + $7,249.12 (from the fifth bracket) = $41,977.62.

To find the effective tax rate, we divide this total tax by the taxable income, and multiply by 100 to get the result as a percentage. So, the effective tax rate equals ($41,977.62 / $192,700) * 100 = 21.77% (rounded to the nearest hundredth).

Therefore, the effective tax rate for a taxable income of $192,700 is

Answer: 21.77%.