Question

Campbell, a single taxpayer, earns $393,000 in taxable income and $12,000 in interest from an investment in State of New York bonds. (Use the U.S. tax rate schedule.) (Do not round intermediate calculations. Round "Federal tax" to 2 decimal places.)

a. If Campbell earns an additional $27,500 of taxable income, what is her marginal tax rate on this income?

     

b. What is her marginal rate if instead she had $27,500 of additional deduction?

Answer 1

Using 2018 tax Schedule
Taxable Income (old)	$393,000.00
$45,689.50 plus 35% of the amount over $200,000
Cambell will owe (old Tax)= $45,689.50 + 35%*($393,000 - $200000)	$113,239.50
Marginal tax rate = New tax - Old tax/(New Taxable Income - Old Taxable income)
New Taxable Income = ($393000 + $27,500)	$420,500.00
New Tax = $45,689.50 + 35%*($420,500 - $200,000)	$122,864.50
Marginal tax rate = ($122864.50 - $113,239.50)/($420,500 - $393000)	35.00%
b) What is her marginal rate if instead she had $27,500 of additional deduction?
Using 2018 tax Schedule
Taxable Income (old)	$393,000.00
$45,689.50 plus 35% of the amount over $200,000
Cambell will owe (old Tax)= $45,689.50 + 35%*($393,000 - $200000)	$113,239.50
Marginal tax rate = New tax - Old tax/(New Taxable Income - Old Taxable income)
New Taxable Income = ($393000 - $27,500)	$365,500.00
New Tax = $45,689.50 + 35%*($365,500 - $200,000)	$103,614.50
Marginal tax rate = ($103614.50 - $113239.50)/($365,500 - $393000)	35.00%