Question

Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe? What is their average tax rate? What is their effective tax rate? What is their current marginal tax rate? (Round your answers to 2 decimal places.)

Answer 1

Based on their taxable income and the interest from the investment, the following are true:

• Average tax = 16.3%
• Effective tax rate = 12.9%
• Marginal tax rate = 22%

Average Tax Rate

= Tax / Taxable income x 100%

As they earn $150,000, they are in the 22% bracket in 2021 of $81,051 to $172,750.

Average tax is:

= 9,328 + (22% x (150,000 - 81,050))

= $24,497

Average tax rate  = 24,497 / 150,000 x 100%

= 16.3%

Effective Tax rate

= Total tax / Total income x 100%

= 24,497 / (150,000 + 40,000) x 100%

= 12.9%

Marginal tax rate

This is their tax bracket of 22%.

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