Individual Income Tax Essay

How Mr P’s tax is computed. Show An example of how to calculate the tax liability using the tax rate table and the tax rate formula for a taxpayer with taxable income of $55,000, filing status married filing jointly. Also provide An explanation of the marginal tax rate and average tax rates for this tax payer.


It is important for one to know their tax brackets so that they can make prior plans on how to invest their income when they still have the opportunity to work and make more money. Additionally, it is important to know the tax brackets so that one can get prepared for the tax liability that they owe to the government.

The year 2015 is slowly coming to an end and tax payers are getting concerned about the amount of money they owe the government in form of taxes. It is therefore important for the tax payers to understand their incremental tax rates so that they appreciate the possible benefits that will derive from the deductions.  For the case of Ms. Dunham she will first have to understand that the government uses income tax rates tables to calculate the amount of taxes that each citizen is supposed to pay. The tables get published every single year because the rates that are used keep on changing from one year to the next. The published documents are then passed through the internal revenue services (IRS).  It is through the tables that Ms. Dunham will be able to know the amount of taxes she is supposed to pay to the government as well as her incremental tax rates. Moreover, if Dunham and her husband owed the government some money from the previous year, then the same can also be generated using the tables.

Since Dunham are filing the returns as a married who are jointly paying the taxes, they will use the following table.



Taxable income is over – But not over – The tax is: Of the amount over –
$0 $18,450 $0 + 10% $0
18,450 74,900 1,845.00 + 15% 18,450
74,900 151,200 10,312.50 + 25% 74,900
151,200 230,450 29,387.50 + 28% 151,200
230,450 411,500 51,577.50 + 33% 230,450
411,500 464,850 111,324.00 + 35% 411,500
464,850  – 129,996.50 + 39.6% 464,850

Since the taxable income of the family falls between $ 18, 400 and 74, 900, the amount of tax payable will be calculated as follows:

$ 1, 845.00 + 15% * (55, 000 – 18, 450)

$ 1, 845.00 + 15% * 36, 550

$ 1, 845 + 5482.50 = $ 7, 327.5

According to the table given above, the family of Ms. Dunham will be subjected to a marginal tax rate of 25 %. The marginal tax rate simply refers to the increment in tax rate as the dollar earned by the individual also increases. The table shows that if the family’s income is increased, then the amount of tax that they will pay will increase by 25% if they still fall within the same tax bracket.

The family’s average tax rate also known as the effective rate refers to the portion of income that the two will pay in taxes without including the tax rates that the government imposes on them (Center for Budget policy). From the table above, the average tax rate for the family will be $ 1, 845.00

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