1. Federal Tax Calculation for Campbell (Single Taxpayer)

Campbell earns $404,000 in taxable income, and $2,200 from New York bonds, which are not subject to federal tax since municipal bond interest is typically tax-exempt.

Using Schedule X (Single) for the 2024 tax rates:

• Taxable Income: $404,000
• Federal Tax is calculated by applying the tax rates for each portion of the income bracket.

Breakdown by brackets:

1. First $11,600 at 10%: $11,600 \times 0.10 = 1,160$

2. From $11,600 to $47,150 ($47,150 - $11,600 = $35,550) at 12%: $35,550 \times 0.12 = 4,266$

3. From $47,150 to $100,525 ($100,525 - $47,150 = $53,375) at 22%: $53,375 \times 0.22 = 11,742.50$

4. From $100,525 to $191,950 ($191,950 - $100,525 = $91,425) at 24%: $91,425 \times 0.24 = 21,942$

5. From $191,950 to $243,725 ($243,725 - $191,950 = $51,775) at 32%: $51,775 \times 0.32 = 16,568$

6. From $243,725 to $404,000 ($404,000 - $243,725 = $160,275) at 35%: $160,275 \times 0.35 = 56,096.25$

Total Federal Tax Owed:

$1,160 + 4,266 + 11,742.50 + 21,942 + 16,568 + 56,096.25 = 111,774.75$ So, Campbell owes $111,774.75 in federal taxes.

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2. Average Tax Rate

The average tax rate is calculated by dividing the total tax owed by the taxable income: $\text{Average Tax Rate} = \frac{\text{Total Tax}}{\text{Taxable Income}} = \frac{111,774.75}{404,000} \approx 0.2767 \text{ or } 27.67\%$

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3. Effective Tax Rate

The effective tax rate is the total tax divided by the total economic income, which includes taxable income plus tax-exempt income from the bonds: $\text{Effective Tax Rate} = \frac{\text{Total Tax}}{\text{Taxable Income + Tax-exempt income}} = \frac{111,774.75}{404,000 + 2,200} \approx 0.2758 \text{ or } 27.58\%$

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4. Marginal Tax Rate

Campbell's marginal tax rate is the tax rate applied to her last dollar of income. Since her taxable income falls within the $243,725 - $609,350 range, the marginal rate is 35%.

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Summary:

1. Federal Tax Owed: $111,774.75
2. Average Tax Rate: 27.67%
3. Effective Tax Rate: 27.58%
4. Marginal Tax Rate: 35%

Would you like further clarifications or more details on any part of the calculations?

Here are five follow-up questions for deeper understanding:

1. How would Campbell's tax change if she earned an additional $50,000?
2. What is the significance of the average tax rate compared to the marginal tax rate?
3. How do municipal bond investments affect taxable income?
4. How does the progressive tax system impact high-income earners?
5. How do deductions and credits influence Campbell's final tax liability?

Tip: Always double-check the difference between average and marginal tax rates—average applies to your total income, while marginal is the rate on your next dollar earned.