Answer:
I will use the 2020 tax schedule since recovery rebate credit applies to 2020:
Marc and Michelle's gross income = Marc's and Michelle's salaries + interest from corporate bonds = $64,000 + $12,000 + $500 = $76,500
they should choose the standard deduction since it is higher than their itemized deductions = ($24,400)
contribution to IRA = ($2,500)
alimony payment = ($1,500) the divorce agreement was settled on 2005
Marc and Michelle's taxable income = $48,100
Marc and Michelle's tax liability = $1,975 + [12% x ($48,100 - $19,750)] = $5,377
Interests on municipal bonds is not taxable.
The amount of taxes that they owe = $5,377 - $3,500 (federal tax withholdings) = $1,877
Refundable tax credits:
$2,000 in child tax credit
$2,900 in recovery rebate credit
total = $4,900
taxes payable or refund = tax liability - refundable tax credits = $1,877 - $4,900 = -$3,023.
Marc and Michelle should get a refund for $3,023
