Question

Jenny and Mike are married and earned salaries this year of $72,800 and $15,300, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $1,600 from corporate bonds. Jenny contributed $3,600 to an individual retirement account, and Jenny paid alimony to a prior spouse in the amount of $2,600 (under a divorce decree effective June 1, 2005). Jenny and Mike have a 10-year-old son, Daniel, who lived with them throughout the entire year. Thus, Jenny and Mike are allowed to claim a $2,000 child tax credit for Daniel. Jenny and Mike paid $8,200 of expenditures that qualify as itemized deductions and they had a total of $6,955 in federal income taxes withheld from their paychecks during the year. (Use the tax rate schedules.)

1. What is Jenny and Mike's gross income

2. What is Jenny and Mike's adjusted gross income

3. What is the total amount of Jenny and Mike's deductions from AGI?

4. What is Jenny and Mike’s taxable income?

5. What is Jenny and Mike’s taxes payable or refund due for the year?

Schedule Y-1-Married Filing Jointly or Qualifying Widow(er)

If taxable income is over:	But not over:	The tax is:
$          0	$ 19,750	10% of taxable income
$ 19,750	$ 80,250	$1,975 plus 12% of the excess over $19,750
$ 80,250	$171,050	$9,235 plus 22% of the excess over $80,250
$171,050	$326,600	$29,211 plus 24% of the excess over $171,050
$326,600	$414,700	$66,543 plus 32% of the excess over $326,600
$414,700	$622,050	$94,735 plus 35% of the excess over $414,700
$622,050	—	$167,307.50 plus 37% of the excess over $622,050

Answer 1

1. What is Jenny and Mike's gross income = $89,700

2. What is Jenny and Mike's adjusted gross income = $83,500

3. What is the total amount of Jenny and Mike's deductions from AGI = $24,800

4. What is Jenny and Mike’s taxable income = $58,700

5. What is Jenny and Mike’s taxes payable or refund due for the year = Refund of $2,306

Computation of Tax Payable (Refund) of

Jenny and Mike

Particulars	Amount in $	Computation
(1) Gross income	89,700	$72,800 salary + $15,300 salary + $1,600 corporate bond interest Interest received from municipal bonds of $350 shall not be taxable
(2) For AGI deductions	6,200	$3,600 individual retirement account + $2,600 alimony paid
(3) Adjusted gross income	83,500	(1) – (2)
(4) Standard deduction	24,800	For 2020,Standard deduction. Married filing jointly or qualifying widow(er) $24,800
(5) Itemized deductions	8,200
(6) Greater of standard deductions or itemized deductions	24,800	(4) > (5)
(7) Taxable income	58,700	(3) - (6)
(8) Income tax liability	6,649	$1,975 plus 12% of the excess over $19,750 =$1,975+12%(58,700-19,750)
(9) Child Tax Credit	2,000	Child credit for 10-year old son Matthew
(10) Withholding Tax	6,955	Total of $6,955 in federal income taxes withheld from their paychecks during the year.
(11)Tax Payable (Refund)	(2,306)	(8) - (9) - (10)