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Mekhanik [1.2K]
3 years ago
11

Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. (U

se the US tax rate schedule)Required:a. If Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income?b. What is his marginal rate if, instead, he had $40,000 of additional deductions?
Business
1 answer:
scZoUnD [109]3 years ago
3 0

Answer:

a. 24%

b. 12%

Explanation:

Marginal tax rate is an incremental tax rate that is paid out of the taxable income of a tax payer. It represents the rate at which the last unit of dollar of the taxable income is taxed. The marginal rate for each income bracket is supplied by the Internal Revenue Service (IRS).

                               Chuck Marginal Tax Rate

a) The marginal tax rate for Chuck if he earns additional $40,000 taxable income will be:

= $75,000 + $40,000

= $115,000

Marginal tax rate for $115,000 is 24% according IRS tax rate schedule.

b) If instead, it is an additional deduction of $40,0000, the marginal tax rate will be:

= $75,000 - $40,000

= $35,000

The marginal tax rate for taxable income of $35,000 is 12% according US tax rate schedule.

Note: the interest is categorized as interest from municipal bond, so it is tax free.

It is also assumed that Chuck is single. Hence, tax rate under single filer applies to him.

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Direct materials                                  $2.04         $511,020

Direct labor                                           0.40          100,200

Variable manufacturing overhead       1.04         260,520

Fixed manufacturing overhead            1.02         255,510

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Fixed manufacturing overhead           1.02          255,510

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Direct materials                                  $2.04         $2,103,240

Direct labor                                           0.40              412,400

Variable manufacturing overhead       1.04           1,072,240

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Variable selling expenses                    0.34            350,540

Totals                                                  $5.26       $5,423,060

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