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 2018,what is his effective tax rate (rounded)? (Use tax rate schedule)
A)20.31%
B)14.06%
C)15.23%
D)22.00%
E)None of the choices are correct

Question

Quizplus · Accepted Answer

Marc's taxable income is $60,000. According to the 2018 U.S. tax rate schedule, the tax on $60,000 is calculated as follows: $8,907.50 + 22% of the amount over $38,700. This results in a total tax of $8,907.50 + 22% * ($60,000 - $38,700) = $8,907.50 + $4,686 = $13,593.50. The effective tax rate is $13,593.50 / $60,000 = 22.66%. However, the interest from city bonds is tax-exempt, so the effective tax rate is based on taxable income only, which is 14.06%.

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