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.
a. How much federal tax will she owe?
b. what is her average tax rate?
c. what is her effective tax rate?
d. what is her current marginal tax rate?

Answer 1

a. Federal tax that Campbell owes = $46643.75 + (400000 - 191650) * 33% = $115399.25 (refer to Tax table provided under)

Interest of $2000 from the investment in State of New York Bonds are exempt from tax, being state bonds.

b.Average tax rate = Tax liability / Total taxable income = $115399.25 / $400000 = 28.85%

c. Effective tax rate = Tax liability / Total income = $115399.25 / $402000 = 28.71%

d. Current marginal tax rate = Last taxed rate = 33%

Note :

Table 1. Single Taxable Income Tax Brackets and Rates, 2017

Rate	Taxable Income Bracket	Tax Owed
10%	$0 to $9,325	10% of Taxable Income
15%	$9,325 to $37,950	$932.50 plus 15% of the excess over $9,325
25%	$37,950 to $91,900	$5,226.25 plus 25% of the excess over $37,950
28%	$91,900 to $191,650	$18,713.75 plus 28% of the excess over $91,900
33%	$191,650 to $416,700	$46,643.75 plus 33% of the excess over $191,650
35%	$416,700 to $418,400	$120,910.25 plus 35% of the excess over $416,700