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%