Question

marginal tax rate chart

determine the effective tax rate for a taxable income of \\$75,400. round the final answer to the nearest hundredth.

10.05%
16.27%
22.00%
24.90%

Explanation:

Identify the applicable tax brackets

The taxable income is \(I = \$75,400\). We locate where this income falls within the marginal tax rate chart:

• Bracket 1: \(\$0\) to \(\$10,275\) at \(10\%\)
• Bracket 2: \(\$10,276\) to \(\$41,175\) at \(12\%\)
• Bracket 3: \(\$41,176\) to \(\$89,075\) at \(22\%\)

Since \(\$75,400\) is between \(\$41,176\) and \(\$89,075\), the income spans across these three brackets.

Calculate tax for each bracket

We compute the tax owed in each progressive bracket:

• Tax in Bracket 1:

$$ T_1 = 10,275 \times 0.10 = 1,027.50 $$

• Tax in Bracket 2:

$$ T_2 = (41,175 - 10,275) \times 0.12 = 30,900 \times 0.12 = 3,708.00 $$

• Tax in Bracket 3:

$$ T_3 = (75,400 - 41,175) \times 0.22 = 34,225 \times 0.22 = 7,529.50 $$

Calculate total tax liability

We sum the tax from all three brackets:

$$ T_{\text{total}} = T_1 + T_2 + T_3 $$

$$ T_{\text{total}} = 1,027.50 + 3,708.00 + 7,529.50 = 12,265.00 $$

Calculate the effective tax rate

The effective tax rate is the total tax divided by the total taxable income:

$$ \text{Effective Tax Rate} = \frac{T_{\text{total}}}{I} \times 100\% $$

$$ \text{Effective Tax Rate} = \frac{12,265}{75,400} \times 100\% \approx 16.266578\% $$

Rounding to the nearest hundredth gives \(16.27\%\).

Answer:

• 10.05%
• 16.27% (Correct answer)
• 22.00%
• 24.90%