Question

In: Accounting

Mr. E, a petroleum engineer, earns an $84,500 annual salary, while Mrs. E, a homemaker, has...

Mr. E, a petroleum engineer, earns an $84,500 annual salary, while Mrs. E, a homemaker, has no earned income. Under current law, the couple pays 20 percent in state and federal income tax. Because of recent tax law changes, the couple’s future tax rate will increase to 28 percent. If Mrs. E decides to take a part-time job because of the rate increase, how much income must she earn to maintain the couple’s after-tax disposable income? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Jurisdiction X levies a flat 15 percent tax on individual income in excess of $35,000 per year. Individuals who earn $35,000 or less pay no income tax.

Mr. Hill earned $91,200 income this year. Compute his income tax and determine his average and marginal tax rate.

Ms. Lui earned $43,100 income this year. Compute her income tax and determine her average and marginal tax rate.

Ms. Archer earned $31,400 income this year and paid no income tax. Describe her average and marginal tax rate.

What type of rate structure does Jurisdiction X use for its individual income tax?

Jurisdiction X levies a flat 15 percent tax on individual income in excess of $35,000 per year. Individuals who earn $35,000 or less pay no income tax.

Mr. Hill earned $91,200 income this year. Compute his income tax and determine his average and marginal tax rate.

Ms. Lui earned $43,100 income this year. Compute her income tax and determine her average and marginal tax rate.

Ms. Archer earned $31,400 income this year and paid no income tax. Describe her average and marginal tax rate.

What type of rate structure does Jurisdiction X use for its individual income tax?

Percentage Rate Bracket
6 % Income from –0– to $30,000
10 Income from $30,001 to $70,000
20 Income from $70,001 to $200,000
28 Income in excess of $200,000

  1. Taxpayer A’s taxable income is $178,300. Compute A’s tax and average tax rate. What is A’s marginal tax rate?

  2. Taxpayer B’s taxable income is $661,800. Compute B’s tax and average tax rate. What is B’s marginal tax rate?

Country A levies an individual income tax with the following rate structure:

Percentage Rate Bracket
10 % Income from -0- to $20,000
15 Income from $20,001 to $75,000
25 Income from $75,001 to $160,000
30 Income in excess of $160,000

Ms. SP’s annual taxable income for years 1 through 5 is $140,200. Ms. OC’s taxable income for years 1 through 4 is $16,500. In year 5, Ms. OC wins a lottery, and her taxable income for this one year jumps to $635,000. Assume the tax rate bracket has not changed.

  1. How much total income does each individual earn over the 5-year period?

  2. Compute each individual’s average tax rate for the 5-year period.

Country A levies an individual income tax with the following rate structure:

Percentage Rate Bracket
10 % Income from -0- to $20,000
15 Income from $20,001 to $75,000
25 Income from $75,001 to $160,000
30 Income in excess of $160,000

Ms. SP’s annual taxable income for years 1 through 5 is $140,200. Ms. OC’s taxable income for years 1 through 4 is $16,500. In year 5, Ms. OC wins a lottery, and her taxable income for this one year jumps to $635,000. Assume the tax rate bracket has not changed.

  1. How much total income does each individual earn over the 5-year period?

  2. Compute each individual’s average tax rate for the 5-year period.

Country A levies an individual income tax with the following rate structure:

Percentage Rate Bracket
10 % Income from -0- to $20,000
15 Income from $20,001 to $75,000
25 Income from $75,001 to $160,000
30 Income in excess of $160,000

Ms. SP’s annual taxable income for years 1 through 5 is $140,200. Ms. OC’s taxable income for years 1 through 4 is $16,500. In year 5, Ms. OC wins a lottery, and her taxable income for this one year jumps to $635,000. Assume the tax rate bracket has not changed.

  1. How much total income does each individual earn over the 5-year period?

  2. Compute each individual’s average tax rate for the 5-year period.

Jurisdiction B’s tax system consists of a 6.5 percent general sales tax on retail goods and selected services. Over the past decade, the average annual volume of sales subject to this tax was $860 million. The jurisdiction needs to increase its tax revenues by approximately $8.6 million each year to finance its spending programs. The taxing authorities are considering two alternatives: a 1 percent increase in the sales tax rate or a new 2 percent tax on the net income of corporations doing business in the jurisdiction. Based on recent economic data, the annual net income subject to the new tax would be $455 million. However, the jurisdiction would have to create a new agency responsible for enforcing and collecting the income tax. The estimated annual cost of the agency is $500,000. Jurisdiction B borders four other taxing jurisdictions, all of which have a general sales tax and two of which have a corporate income tax.

1. Based on a static forecast, how much incremental revenue would Jurisdiction B raise under each alternative? (Enter your answers in millions rounded to 1 decimal place.)

Solutions

Expert Solution

Income earned by Mrs E = $84500*20% =$16900/28% = $60357

INCOME TAX BY MR HILL= $91200-$35000 = $56200*15% = $8430

AVERAGE TAX RATE = $8430/$91200 = 9.24%

MARGINAL TAX RATE = $8430/$56200 = 15%

INCOME TAX BY MS LUI = $43100-$35000 = $8100*15% =$1215

AVERAGE TAX RATE = $1215/$43100 = 2.82%

MARGINAL TAX RATE = $1215/$8100 = 15%

AVERAGE AND MARGINAL TAX RATE BY MR. ARCHER = NIL

a). A's Tax = $27460

calculation - $30000*6% = $1800

$40000*10%=$4000

$108300*20%= $21660

average tax rate= $27460/$178300 =15.40%

b). B's tax = $ 161104

calculation - $30000*6% = $1800

$40000*10%=$4000

$130000*20%= $26000

$ 461800*28% = $129304

average tax rate= $161104/$661800= 24.34%

-> a) & b) total income earned by- Ms. SP & AVERAGE TAX RATE OVER 5 YEAR PERIOD

year1 2 3 4 5
income $140200 $140200 $140200 $140200 $140200
TAX $26550 $26550 $26550 $26550 $26550
AVERAGE TAX RATE

=$26550/$140200 =

=18.94%

=$26550/$140200 =

=18.94%

=$26550/$140200 =

=18.94%

=$26550/$140200 =

=18.94%

=$26550/$140200 =

=18.94%

  total income earned by- Ms. OC & AVERAGE TAX RATE OVER 5 YEAR PERIOD

Year1 2 3 4 5
income $16500 $16500 $16500 $16500 $16500
lottery $618500
total income $16500 $16500 $16500 $16500 $635000
tax $1650 $1650 $1650 $1650 $174000
average tax rate =$1650/$16500 = 10% =$1650/$16500 = 10% =$1650/$16500 = 10% =$1650/$16500 = 10% =$174000/$635000 =27.40%

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