Question

Exercise 3-20 (Algorithmic) (LO. 6) Compute the 2020 tax liability and the marginal and average tax rates for the following taxpayers. If required, round the tax liability to the nearest dollar. When required, round the average rates to four decimal places before converting to a percentage (i.e. .67073 would be rounded to .6707 and entered as 67.07%).

a. Chandler, who files as a single taxpayer, has taxable income of $110,800.

Tax liability: $

Marginal rate: %

Average rate: %

b. Lazare, who files as a head of household, has a taxable income of $75,000.

Tax liability: $

Marginal rate: %

Average rate: %

Answer 1

Part a)

His taxable income is $110,800, First 9,875 is taxed @ 10%, 30,250 is taxed @ 12%, 45,400 is taxed @ 22% & balance 25,275 is taxed @ 24%.

Tax rate (i)	Single (ii)	Taxable Income under relevant rate (iii)	Tax liability (iv)=(i)*(iii)
10%	$0 to $9,875	9,875.00	987.50
12%	$9,876 to $ 40,125	40125 - 9875 = 30,250.00	3,630.00
22%	$40,126 to $85,525	85525 - 40125 = 45,400.00	9,988.00
24%	$85,526 to 163,300	110800 - 85525 = 25,275.00	6,066.00
32%	$163,301 to $207,350
35%	$207,351 to $518,400
37%	$518,401 or more
			20,671.50

Chandler tax liability = $ 20,671.50; Marginal rate = 10%,12%,22% & 24% (refer above chart);

Chandler average rate = Tax liability/Total income = $20,671.50/$110,800 = 18.66%

Part b)

Lazare household income is $75,000, First 14,100 is taxable @10%, Next 39,600 is taxable @ 12% & balance 21,300 is taxable @22%.

Tax rate (i)	Head of household (ii)	Taxable Income under relevant rate (iii)	Tax liability (iv)=(i)*(iii)
10%	$0 to $14,100	14,100.00	1,410.00
12%	$14,101 to $ 53,700	39,600.00	4,752.00
22%	$53,701 to $85,500	21,300.00	4,686.00
24%	$85,501 to 163,300
32%	$163,301 to $207,350
35%	$207,351 to $518,400
37%	$518,401 or more
			10,848.00

Lazare tax liability = $ 10,848 Marginal rate = 10%,12% & 22% (refer above chart);

Lazare average rate = Tax liability/Total income = $10,848/$75,000 = 9.79%