Question

Lacy is a single taxpayer. In 2020, her taxable income is $42,000. What is her tax liability in each of the following alternative situations? Use Tax Rate Schedule, Dividends and Capital Gains Tax Rates for reference. (Do not round intermediate calculations.)

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

Tax Rates for Net Capital Gains and Qualified Dividends

Rate*	Taxable Income
	Married Filing Jointly	Married Filing Separately	Single	Head of Household	Trusts and Estates
0%	$0 - $80,000	$0 - $40,000	$0 - $40,000	$0 - $53,600	$0 - $2,650
15%	$80,001 - $496,600	$40,001 - $248,300	$40,001 - $441,450	$53,601 - $469,050	$2,651 - $13,150
20%	$496,601+	$248,301+	$441,451+	$469,051+	$13,151+

*This rate applies to the net capital gains and qualified dividends that fall within the range of taxable income specified in the table (net capital gains and qualified dividends are included in taxable income last for this purpose).

a. All of her income is salary from her employer.

b. Her $42,000 of taxable income includes $1,000 of qualified dividends.

c. Her $42,000 of taxable income includes $5,000 of qualified dividends. (Round your answers to 2 decimal places.)

Answer 1

Ans:

1. Income= Salary from Employer

Status= Single

Tax liability= $4,617.50+22% of {42,000-40,125}

=> $4,617.50+ 22% of 1,875

=> $4,617.50+ 412.50

=> $5,030

2. Her $42,000 of taxable income includes $1,000 of qualified dividends:

Taxable income- 42,000

Qualified dividends= 1,000

Net income which is taxed at ordinary rates= 41,000

Tax Liability= $4,617.50+ 22% of {41,000-40,125}

=> $4,617.50+ 22% of 875

=. $4,617.50+ 192.50

=> $4,810

Taxon Qualified Dividends i.e. $1,000:

Since taxable Income falls between the slab of $40,001 to $441,450 and rate is 15% flat

therefore tax on Qualified Dividends= 1,000*15%: $150

Total Tax= $4,810+150

=> $4,960

3. Her $42,000 of taxable income includes $5,000 of qualified dividends

Taxable income= $42,000

Qualified Dividends= $5,000

Net income which is taxed at ordinary rates= 37,000

Tax liability= $987.50+ 12% of {37,000-9,875}

=> $987.50 + 12% of 27,125

=> $987.50+ 3,255

=> $4,242.50

Tax on Qualified Dividends= {5,000*15%} { As taxable incomes lies between the slab of 40,001 to 441,450}

=> 5,000*15%

=> 750

Tax liability= $4,242.50+750

=> $4,992.50

=> $4,542.50