Question

Susan is single with a gross income of $120,000 and a taxable income of $98,000. In calculating gross income, she properly excluded $10,000 of tax-exempt interest income.

What is her total tax?

What is her marginal tax rate?

what is her average tax rate?

what is her effective tax rate?

Answer 1

Solution:-

In the absence of tax period, question is answer using 2017 tax rate schedule.

1. What is her total tax:-

Taxable Income	$98,000
Tax on	91,900	$18,713.75
Excess	$6,100
Taxed at Marginal Rate	* 28%	1,708.00
Total Tax		$20,421.75

2. What is her marginal tax rate:-

The marginal tax rate is the rate of tax that would be paid on an additional dollar of income. At a taxable income of $98,000, a single taxpayer would be in the 28% marginal tax rate bracket (from the calculation above).

3. What is her average tax rate:-

The average tax rate is the rate of tax paid on the total tax base; the total tax divided by taxable income.In this case, the total tax is $20,421.75 on a taxable income of $98,000, which gives an average tax rate of 20.84%:

20.84% = ($20,421.75 tax / $98,000 taxable income)

4. What is her effective tax rate:-

The effective tax rate is the rate of tax paid on all income (taxable and nontaxable). The total tax paid is divided by the taxpayer's economic income (taxable income + nontaxable income). In this case, Susan has $10,000 of tax-exempt income that increases her economic income to $108,000 ($98,000 taxable +$10,000 nontaxable). This results in an effective tax rate of 18.91%:

18.91% = ($20,421.75 tax / $108,000 economic income)

In the absence of tax period, question is answer using 2017 tax rate schedule.