Question

1. A single taxpayer has $140,000 of taxable income. Using the tax rate schedules, compute this taxpayers federal income tax liability.

a. What is this taxpayer’s marginal tax rate?

b. What is this taxpayers average tax rate?

c. If this taxpayer were able to obtain a $1,000 deduction, how much in taxes would they save?

d. If this taxpayer were able to obtain a $1,000 credit, how much in taxes would they save?

2. A taxpayer is employed by Company S. The taxpayer had wages of $180,000 from the company this year. Compute the taxpayer’s social security and medicare tax.

3. A taxpayer had self-employment income of $180,000 this year. Compute the amount of social security and medicare self-employment tax that the taxpayer must pay this year.

Answer 1

1.

a. As per income, the taxpayer is in 24% tax bracket. His marginal tax rate is 24%.

b. Average tax rate of taxpayer is 17.65%.

c. There would be no saving as higher of standard deduction or itemised deduction is to be considered.

d. it will result in a saving of $1000

2. For Employee:

Social Security: $17,075
Medicare: 5,220

Total: $22,295
Employee's Half: $11,147

3. For Self employed taxpayer:

Social Security: $17,075
Medicare: 4,821

Total: $21,895
Deductible Half: $10,948