Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule.)

Required:
If Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income?
What is his marginal rate if, instead, he had $40,000 of additional deductions?
Note: For all requirements, do not round intermediate calculations. Round percentage answers to 2 decimal places.

### U.S. Federal Income Tax Rate Schedule (2023) for Single Filers:

1. **10%** on income up to $11,000
2. **12%** on income between $11,001 and $44,725
3. **22%** on income between $44,726 and $95,375
4. **24%** on income between $95,376 and $182,100
5. **32%** on income between $182,101 and $231,250
6. **35%** on income between $231,251 and $578,125
7. **37%** on income over $578,126

### Part 1: Marginal Tax Rate if Chuck Earns an Additional $40,000

1. Chuck's initial taxable income is $75,000. This puts him in the **22% bracket** because his income falls between $44,726 and $95,375.
   
2. If Chuck earns an additional $40,000, his new taxable income will be:
   \[
   75,000 + 40,000 = 115,000
   \]
   This places part of his income in the **24% bracket** because income between $95,376 and $182,100 is taxed at 24%.

   Let's break down the marginal tax rate calculation:
   - For the first portion of his additional income that pushes him to the next tax bracket:
     \[
     95,375 - 75,000 = 20,375 \quad (\text{taxed at 22%})
     \]
   - The remaining portion:
     \[
     40,000 - 20,375 = 19,625 \quad (\text{taxed at 24%})
     \]

   Therefore, Chuck's marginal tax rate on this additional income will be 24%, as the last dollar he earns is taxed at that rate.

### Part 2: Marginal Rate if Chuck Had $40,000 of Additional Deductions

1. If Chuck instead has **$40,000 of additional deductions**, his taxable income decreases to:
   \[
   75,000 - 40,000 = 35,000
   \]
   This places his new taxable income in the **12% tax bracket** (for income between $11,001 and $44,725).

2. Before the deductions, his income was in the **22% bracket**, and after the deductions, it falls into the **12% bracket**.

Thus, the marginal tax rate, in this case, would be **22%** for each dollar of deduction, as it reduces income that was previously taxed at the 22% rate.

---

### Summary:

1. **Marginal tax rate for additional $40,000 of taxable income**: **24%**.
2. **Marginal tax rate for $40,000 of deductions**: **22%**.

Would you like further details on any part of this calculation?

### 5 Related Questions:
1. How do standard deductions affect marginal tax rates for single taxpayers?
2. What are the effects of capital gains on marginal tax rates?
3. How does the AMT (Alternative Minimum Tax) impact marginal tax rates for high-income earners?
4. What strategies can be used to reduce taxable income in higher tax brackets?
5. How does tax-exempt interest from municipal bonds affect overall tax liability?

### Tip:
Deductions reduce taxable income, potentially moving you to a lower tax bracket, while additional income can push you into a higher bracket, both affecting your marginal tax rate.

Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule.) If Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income? What is his marginal rate if, instead, he had $40,000 of additional deductions? Note: For all requirements, do not round intermediate calculations. Round percentage answers to 2 decimal places.

Find out how to calculate the marginal tax rate for Chuck, a single taxpayer earning $75,000, on an additional $40,000 of income or deductions using the 2023 U.S. tax rate schedule. This detailed guide walks through the steps for determining his new taxable income, marginal tax rates, and explains the impact of deductions.

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