Question

Max, a single taxpayer, has determined her taxable income is $76,000. She also received interest from an investment in City of Hawkins bonds of $13,000 (municipal bonds), which are considered non-taxable for federal purposes.

(a) Using the U.S. tax rate schedule for year 2020, how much federal tax will Max owe given the above information?

(b) What is her average tax rate?

(c) What is her effective tax rate?

(d) What is her current marginal tax rate?

(e) If Max earned an additional $27,000 of taxable income, what would her marginal tax rate on this additional income only be?

Answer 1

Tax rate	Income ranges	Remarks
10%	0 to 9,875	10% of taxable income
12%	9,876 to 40,125	987.50 + 12% of taxable income in excess of 9,875
22%	40,126 to 85,525	4,617.50 + 22% of taxable income in excess of 40,125
24%	85,526 to 163,300	14,605.50 + 24% of taxable income in excess of 85,525
32%	163,301 to 207,350	33,271.50 + 32% of taxable income in excess of 163,300
35%	207,351 to 518,400	47,367.50 + 35% of taxable income in excess of 207,350
37%	518,401 or more	156,235 + 37% of taxable income in excess of 518,400

Answer 1

Tax rate	Income ranges	Remarks
10%	0 to 9,875	10% of taxable income
12%	9,876 to 40,125	987.50 + 12% of taxable income in excess of 9,875
22%	40,126 to 85,525	4,617.50 + 22% of taxable income in excess of 40,125
24%	85,526 to 163,300	14,605.50 + 24% of taxable income in excess of 85,525
32%	163,301 to 207,350	33,271.50 + 32% of taxable income in excess of 163,300
35%	207,351 to 518,400	47,367.50 + 35% of taxable income in excess of 207,350
37%	518,401 or more	156,235 + 37% of taxable income in excess of 518,400

First range	9875	10%	987.5
Second range	30250	12%	3630
Third range (76000-40125)	35875	22%	7892.5
Total	76000		12510
Federal tax will Max owe			12510

Answer 2

Total tax	12,510
Divided by: Taxable income	76,000
Average tax rate	16.46%

Answer 3

Total tax	12,510
Divided by: total income (76000+13000)	89,000
Effective tax rate	14.06%

Answer 4

Current marginal tax rate [4,617.50 + 22% of taxable income in excess of 40,125]

22.00%

Answer 5

First range	9875	10%	987.5
Second range	30250	12%	3630
Third range	45400	22%	9988
Fourth range (103000-85525)	17475	24%	4194
Total	103000		18799.5
Increase in tax (18799.5-12510)			6289.5
Divided by: Increase in taxable income (103000-76000)			27000
Marginal tax rate			23.29%