Question

Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bonds. (Use the U.S. tax rate schedule). (Do not round intermediate calculations. Round your answers to 2 decimal places.)a. If Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income? b. What is her marginal rate if, instead, she had $15,000 of additional deductions?

Answer 1

A. Marginal tax rate is 34.02%

B. Marginal tax rate is 33.00%

Step by Step Explanation:

A. If Campbell earns an additional $15,000 of taxable income, her marginal tax rate on the income is 34.02 percent.

Marginal tax rate=Tax/Taxable income

($120,709.05-$115,606.25)=$5,102.8

($415,000 − $400,000)=$15,000

$5102.8/$15,000= 3.401

3.401 ×100= 34.02%

b.If Campbell instead had $15,000 of additional tax deductions, her marginal tax rate on the deductions would be 33.00 percent.

Marginal tax rate=Tax/Taxable income

($110,656.25-$115,606.25)= $4,950

($385,000 -$400,000)= $15,000

$4,950/$42,000= 0.33

0.33×100= 33.00%