Heather, a single taxpayer who files as a head of household, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Oxford bonds. Using the U.S. tax rate schedule for year 2019, how much federal tax will she owe? What is her average tax rate? What is her effective tax rate? What is her current marginal tax rate? If Heather has an additional $20,000 of tax deductions, what is her marginal tax rate on these deductions? (Round the tax rates to two decimal places, e.g., .12345 as 12.35 percent.) (Use tax rate schedule).
What will be an ideal response?
Heather will owe $7,638 in federal income tax this year, computed as follows:
$7,638 = $6,065 + (22% × ($60,000 ? $52,850)).
Heather's average tax rate is 12.73 percent.
Average Tax Rate = Total Tax/Taxable Income = $7,638 / $60,000 = 12.73%.
Heather's effective tax rate is 11.75 percent.
Effective Tax Rate = Total Tax/Total Income = $7,638 / ($60,000 + $5,000) = 11.75%.
Heather is currently in the 22 percent tax rate bracket. Her marginal tax rate on small increases in income and deductions is 22 percent.
If Heather has an additional $20,000 of tax deductions, her marginal tax rate on the deductions is 16.10 percent.
Marginal Tax Rate = Change in Tax/Change in Taxable Income = ($4,523 ? $7,638) / ($40,000 ? $60,000) = 15.58%.
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