Marc, a single taxpayer, earns $60,400 in taxable income and $5,040 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2020, what is his effective tax rate? (Round your final answer to two decimal places.)(Use Tax rate schedule.)
A)20.34 percent
B)13.87 percent
C)15.03 percent
D)10.51 percent
E)None of the choices are correct

Question

Quizplus · Accepted Answer

The effective tax rate is calculated by dividing the total tax by the total income (taxable income plus tax-exempt income). The tax on $60,400 using the 2020 tax rate schedule is $8,385. The total income is $60,400 + $5,040 = $65,440. The effective tax rate is $8,385 / $65,440 = 0.1281 or 12.81%. However, since the interest from city bonds is tax-exempt, the effective tax rate is based only on taxable income, which is $8,385 / $60,400 = 13.87%.

Marc, a Single Taxpayer, Earns $60,400 in Taxable Income and $5,040