Question

Leonardo, who is married but files separately, earns $81,600 of taxable income. He also has $16,600 in city of Tulsa bonds. His wife, Theresa, earns $51,600 of taxable income. If Leonardo earned an additional $31,600 of taxable income this year, what would be the marginal tax rate on the extra income for 2020?

2020 Tax Rate Schedules

Individuals

Schedule X-Single

If taxable income is over:	But not over:	The tax is:
$          0	$    9,875	10% of taxable income
$    9,875	$ 40,125	$987.50 plus 12% of the excess over $9,875
$ 40,125	$ 85,525	$4,617.50 plus 22% of the excess over $40,125
$ 85,525	$163,300	$14,605.50 plus 24% of the excess over $85,525
$163,300	$207,350	$33,271.50 plus 32% of the excess over $163,300
$207,350	$518,400	$47,367.50 plus 35% of the excess over $207,350
$518,400	—	$156,235 plus 37% of the excess over $518,400

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

Schedule Z-Head of Household

If taxable income is over:	But not over:	The tax is:
$          0	$ 14,100	10% of taxable income
$ 14,100	$ 53,700	$1,410 plus 12% of the excess over $14,100
$ 53,700	$ 85,500	$6,162 plus 22% of the excess over $53,700
$ 85,500	$163,300	$13,158 plus 24% of the excess over $85,500
$163,300	$207,350	$31,830 plus 32% of the excess over $163,300
$207,350	$518,400	$45,926 plus 35% of the excess over $207,350
$518,400	—	$154,793.50 plus 37% of the excess over $518,400

Schedule Y-2-Married Filing Separately

If taxable income is over:	But not over:	The tax is:
$          0	$    9,875	10% of taxable income
$    9,875	$ 40,125	$987.50 plus 12% of the excess over $9,875
$ 40,125	$ 85,525	$4,617.50 plus 22% of the excess over $40,125
$ 85,525	$163,300	$14,605.50 plus 24% of the excess over $85,525
$163,300	$207,350	$33,271.50 plus 32% of the excess over $163,300
$207,350	$311,025	$47,367.50 plus 35% of the excess over $207,350
$311,025	—	$83,653.75 plus 37% of the excess over $311,025

Answer 1

Marginal Tax Rate is rate of tax which has to be paid on next $1 of taxable income earned by the person.

For calculating one should refer to rate of the tax bracket of the applicable slab of taxable income.

In the case Leonardo is married but files separately hence applicable tax schedule to leonardo will be Schedule Y-2 - Married Filing Separately and after earning additional income in Year 2020 of $31,600,

Total taxable income of Leonardo will be = $81,600 + $31,600

= $113,200

Note:- Earning from Tulsa Bonds is tax exempt.

Calulation of Marginal Rate

Marginal rate = (Total tax at $113,200 - total tax at $81,600)/($113,200 - $81,600)

Total Tax at $113,200 = ($14,605.50 + (113,200 - 85,525) * 24%) = $14,605.50 + $6,642 = $21,247.50

total tax at $81,600 = ($4,617.50 + (81,600 - 40,125) * 22%) = $4,617.50 + $9,124.50 = $13,742

Marginal Rate = ($21,247.50 - $13,742) / ($113,200 - $81,600)
= $7,505.50 / $31,600
= 23.75%

Answer : the marginal tax rate on the extra income for 2020 is 23.75%