Question

Chuck, a single taxpayer, earns $58,500 in taxable income and $20,800 in interest from an investment in City of Heflin bonds. (Use the U.S tax rate schedule.)Required: How much federal tax will he owe? What is his average tax rate? What is his effective tax rate? What is his current marginal tax rate?

Answer 1

Answer;

1. Chuck's federal taxes

The interest from the Helfin bond is tax free as municipal bonds are free of federal taxes.

Chuck's taxable income is therefore $58,500.

The tax bracket for 2020 will mean his tax is;

= 4,617.50 + 22 % *( 58,500 - 40,125)

= $8,660‬

2. Average Tax Rate

= Total tax/ taxable income

= 8,660/58,500

= 14.8%

3. Effective Tax Rate

= Total tax / ( total income)

= 8,660 / ( 58,500 + 20,800)

= 10.9%

4. As given by his income level and the bracket in which he falls as a result, Chucks's marginal tax rate is 22%.