Question & Answer: George, a single taxpayer, earns $84,000 per year in taxable income and an additional $14,000 per year in city of New York bonds……

George, a single taxpayer, earns $84,000 per year in taxable income and an additional $14,000 per year in city of New York bonds.

If George earns an additional $40,000 in taxable income in year 2017, what is his marginal tax rate on this income?

Expert Answer

 

George will owe $16738.75 in federal income tax this year computed as follows:

$16738.75 = $5226.25 + {25% * ($84,000 – $37,950)}.

If George earns an additional $40,000 of taxable income in 2017, tax =

$27701.75 = $18713.75 + {28% * ($124,000 – $91900)}

If George earns an additional $40,000 of taxable income in 2017, his marginal tax rate on the income is 27.41 percent.

Marginal Tax Rate = Tax / Taxable Income

= (27701.75 – 16738.75) / (124000 – 84000)

= 27.41%

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