Question

Miley, a single taxpayer, plans on reporting $31,875 of taxable income this year (all of her income is from a part-time job). She is considering applying for a second part-time job that would give her an additional $11,400 of taxable income. By how much will the income from the second job increase her tax liability?

Answer 1

Answer: a) $3,640.50

b) $1,825.50

Explanation:

The key thing is to note that tax rates vary per income and various income levels have different taxes. In calculating you add up the maximum of the lower level as you move higher up the classes. Let's solve the question to understand.

Total tax liability when taxable income is $31,875:

Tax rate for,

$0 to $9,225 = 10%

= $9,225*10/100

= $922.50

Her income is still higher so we go to the next class,

$9,225 to $31,875 = 12%

= $31,875 - $9,225

= $22,650*12/100

= $2,718

Total tax liability when taxable income is $31,875

= $2,718 + $922.50

= $3,640.50

Now, if the second part-time job is added then total taxable income is $31,875 + $11,400 = $43,275

We go up the classes again,

$0 to $9,225 = 10%

= $9,225*10/100

= $922.50

$9,225 to $38,700 = 12%

= $38,700 - $9,225

= $29,475*12/100

= $3,537

$38,700 to $43,275 = 22%

= $43,275 - $38,700

= $4,575 * 22/100

= $1,006.5

Total tax liability when taxable income is $43,275,

= $1,006.5 + $3,537 + $922.50

= $5,466

Increase in tax liability = $5,466 - $3,640.50

= $1,825.5

Tax liability will increase by $1,825.50 as a result of the second job.

Answer 2

Answer:

The additional $11400 will increase her tax liability by $ 2147,78

Explanation:

Currently at a taxable income of $ 31,875 her taxable income is $ 970 plus (31875 - 9701 ) x 12% =  $ 2660,88

We are using the 2019 tax tables. (Source IRS)

Her current tax liability is $ 3230,88

If she earns an additional 11400 her new total taxable income will be $43275

Thus her tax will be $ 970 + (39475-9701)x12% + (43275-39476)x22%

Her new tax liability will be $ 5378,66. She is now taxed in the 22% bracket

The additional $11400 will increase her tax liability by $ 2147,78  (5378,66 - 3230,88)

I have attached a tax table from the IRS (source IRS)