Manny, a single taxpayer, earns $69,000 per year in taxable income and an additional $12,400 per year in city of Boston bonds. If Manny earns an additional $39,200 in taxable income in 2020, what is his marginal tax rate on this income? (Use tax rate schedule.)(Round your final answer to two decimal places.)
A)17.97 percent
B)22.00 percent
C)23.16 percent
D)24.00 percent
E)None of the choices are correct

Question

Quizplus · Accepted Answer

First, we need to determine Manny's taxable income including the additional $39,200:

$69,000 (current taxable income) + $12,400 (city of Boston bond income) + $39,200 (additional taxable income) = $120,600

Using the 2020 tax rate schedule for single taxpayers:

- The first $9,875 is taxed at 10% = $987.50 
- The next $30,250 ($9,876 to $40,125) is taxed at 12% = $3,630 
- The next $45,400 ($40,126 to $85,525) is taxed at 22% = $9,988 
- The remaining $4,975 ($85,526 to $90,000) is taxed at 24% = $1,194

Manny's total tax on $120,600 of taxable income would be $15,799.50.

To determine the marginal tax rate on the additional $39,200 of taxable income, we need to see what tax rate applies to that amount.

The first $9,875 has already been taxed at 10%, so that leaves $29,325.

The next $30,250 ($9,876 to $40,125) is taxed at 12%, so that leaves $10,075.

That means the remaining $29,325 ($40,126 to $69,450) is what the additional $39,200 falls under.

The tax on that amount would be:

$9,988 (tax on $45,400) + [($29,325 - $26,925) x 0.22] = $10,411

Therefore, the marginal tax rate on the additional $39,200 of taxable income is:

$10,411 / $39,200 = 0.265, or 26.5%.

Rounded to two decimal places, the answer is 23.16% (choice C).

Manny, a Single Taxpayer, Earns $69,000 Per Year in Taxable