Question

A married (MFJ) taxpayer, earns $100,000 in taxable income and $10,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2019, what is the TP's average tax rate (rounded)

Answer 1

Answer:

20%

Explanation:

According to the marginal tax rate for MFJ, the taxpayer's tax rate for $ 100,000 taxable income is 22%

taxable income = $ 100,000, tax rate = 22% or 0.22

Tax = taxable income *  tax rate

T = TI * TR

where T = tax, TI = taxable income, TR = tax rate

T = $ (100,000 * 0.22) = $ 22,000

Tax = $ 22,000

total tax = $ 22,000, total income = $ (100,000 + 10,000) = $ 110,000

Average tax rate = total amount of tax ÷ total income

AVR = TT ÷ TI

where TR = average tax rate, TT = total tax, TI = total income

AVR = 22,000 ÷ 110,000 = 0.2

AVR = 20%

Average tax rate = 20%

Answer 2

Answer: Average tax rate is 18.29%

Explanation: Total Tax -> $18,289.50 ÷ Taxable Income -> $100,000