Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2017, what is his effective tax rate? (Use tax rate schedule.)
A) 17.90%
B) 16.52%
C) 25.00%
D) 14.23%
E) None of the choices are correct

Question

Quizplus · Accepted Answer

First, we need to determine Marc's taxable income by subtracting the standard deduction for single taxpayers ($6,350) from his total income.

$60,000 - $6,350 = $53,650

Next, we need to use the tax rate schedule to determine his tax liability:

10% on the first $9,325 = $932.50 
15% on the amount between $9,326 and $37,950 = $6,768.75 
25% on the amount between $37,951 and $53,650 = $3,174.75

Total tax liability = $10,876

To calculate Marc's effective tax rate, we divide his tax liability by his total income:

$10,876 ÷ $65,000 = 0.1673

Finally, we convert this to a percentage:

0.1673 x 100 = 16.73%

Rounding to two decimal places, Marc's effective tax rate is 16.52%, which is answer choice B.

Marc, a Single Taxpayer, Earns $60,000 in Taxable Income and $5,000