Question

Liam has a gross income of 120,000 and takes the standard deduction. Answer the following questions.

A. What are his total taxes due?

B. What is his marginal tax rate?

C. What is his effective tax rate? Round to the nearest hundredth of a percent

Answer 1

His total taxes due is $22821.48. His marginal tax rate is 24%. His effective tax rate is 21.000%

What is gross income?

Gross income represents the total income from all sources, including allowances, income, before removing any expenses or taxes.

According to single taxable income tax and bracket rates for 2021;

• If Liam is single and he earns 120000 annually, the total tax due on his annual gross income is:

= $14,751 + ( 24% of the excess over $86,373)

= $14751 + (0.24 × $(120000 - 86373)

= $14751 + (0.24 × $33627)

= $14751 + $8070.48

= $22821.48

The marginal tax rate is the highest bracket that your taxable income can fall in.

• Assuming Liam is single,

Liam marginal tax rate = 24%

His effective tax rate is the actual percentage of the taxable income you end up with paying as taxes.

Effective tax rate = (total tax rate/taxable income) × 100%

where;

• Taxable income = gross income - standard deduction

Effective tax rate = $22821.48/($120000 -$12,950) × 100%

Effective tax rate = 21.32%

Effective tax rate = 21.000% ( to the nearest hundredth of a percent)

Learn more about gross income here:

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