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Problem 3-25 Tax Rates (LO4)

Use Table 3.6. **(Do not round intermediate calculations. Enter the average tax rate as a percent rounded to 1 decimal place.)**

**a.** What would be the marginal tax rate for a married couple with income of $89,700?

**b.** What would be the average tax rate for a married couple with income of $89,700?

**c.** What would be the marginal tax rate for an unmarried taxpayer with income of $89,700?

**d.** What would be the average tax rate for an unmarried taxpayer with income of $89,700?

Let's solve this step by step using the information provided in the table.

### a. Marginal Tax Rate for a Married Couple with Income of $89,700:
From the table, for **married taxpayers filing jointly**:
- The income of $89,700 falls in the range **$77,401–$165,000**, which has a tax rate of **22%**.

So, the marginal tax rate for a married couple with an income of $89,700 is **22%**.

---

### b. Average Tax Rate for a Married Couple with Income of $89,700:
To calculate the average tax rate, we need to calculate the total tax paid and divide it by the total income.

1. For the first **$19,050**, the tax rate is **10%**:
   - Tax = $19,050 * 0.10 = **$1,905**.
   
2. For the next portion, from **$19,051** to **$77,400** (which is $77,400 − $19,050 = $58,350), the tax rate is **12%**:
   - Tax = $58,350 * 0.12 = **$7,002**.

3. For the remaining portion, from **$77,401 to $89,700** (which is $89,700 − $77,400 = $12,300), the tax rate is **22%**:
   - Tax = $12,300 * 0.22 = **$2,706**.

#### Total tax paid:
- $1,905 + $7,002 + $2,706 = **$11,613**.

#### Average tax rate:
\[
\text{Average tax rate} = \left( \frac{\text{Total tax paid}}{\text{Total income}} \right) * 100 = \left( \frac{11,613}{89,700} \right) * 100 = 12.95\%
\]
Thus, the average tax rate is **13.0%** (rounded to 1 decimal place).

---

### c. Marginal Tax Rate for an Unmarried Taxpayer with Income of $89,700:
For **single taxpayers**, the income of $89,700 falls in the range **$82,501–$157,500**, which has a tax rate of **24%**.

So, the marginal tax rate for an unmarried taxpayer with income of $89,700 is **24%**.

---

### d. Average Tax Rate for an Unmarried Taxpayer with Income of $89,700:
Again, let's calculate the total tax paid for the single taxpayer and divide it by their total income.

1. For the first **$9,525**, the tax rate is **10%**:
   - Tax = $9,525 * 0.10 = **$952.50**.

2. For the next portion, from **$9,526** to **$38,700** (which is $38,700 − $9,525 = $29,175), the tax rate is **12%**:
   - Tax = $29,175 * 0.12 = **$3,501**.

3. For the next portion, from **$38,701** to **$82,500** (which is $82,500 − $38,700 = $43,800), the tax rate is **22%**:
   - Tax = $43,800 * 0.22 = **$9,636**.

4. For the remaining portion, from **$82,501 to $89,700** (which is $89,700 − $82,500 = $7,200), the tax rate is **24%**:
   - Tax = $7,200 * 0.24 = **$1,728**.

#### Total tax paid:
- $952.50 + $3,501 + $9,636 + $1,728 = **$15,817.50**.

#### Average tax rate:
\[
\text{Average tax rate} = \left( \frac{\text{Total tax paid}}{\text{Total income}} \right) * 100 = \left( \frac{15,817.50}{89,700} \right) * 100 = 17.64\%
\]
Thus, the average tax rate is **17.6%** (rounded to 1 decimal place).

---

### Summary of Answers:
- **a.** Marginal tax rate (married couple, $89,700): **22%**
- **b.** Average tax rate (married couple, $89,700): **13.0%**
- **c.** Marginal tax rate (single taxpayer, $89,700): **24%**
- **d.** Average tax rate (single taxpayer, $89,700): **17.6%**

---

Do you need more details or have any questions?

Here are some related questions you might want to explore:
1. How would the tax calculations change if the income was $100,000 for both cases?
2. What is the difference in taxes paid between single and married taxpayers at the $89,700 income level?
3. How does the marginal tax rate system affect overall tax fairness?
4. If the tax rates were adjusted for inflation, how would that impact tax brackets today?
5. What are the potential benefits of filing jointly versus separately for married couples?

**Tip:** Always check the latest tax rates and brackets, as they can change annually based on government policies.

What would be the marginal and average tax rates for a married couple and a single taxpayer with an income of $89,700?

Explore detailed tax calculations for both married couples and single taxpayers earning $89,700. Understand how marginal and average tax rates are computed, with step-by-step breakdowns based on 2018 IRS tax brackets. Learn about piecewise calculations and differences between filing statuses.

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