; Q: Use the 2016 marginal tax rates in table 8.1 to compute the tax owed by each person or couple.

8: A married man filing separately with a taxable income of $130,000

18: Unmarried head of household with dependent child

gross income: $40,000

Adjustments: $1500

Deductions: $3600 state taxes

$800 charitable contributions

Tax credit : $2500

507 > Q DAA Cancu largul tax rates, are asigricu lu vallus MICUIIC Tanges, Calicu marginis. CUI example, suppose you are single and your taxable income is $25,000. The singles column of the table shows that you must pay 10% tax on the first $9275, which is 10% of $9275 = 0.10 x $9275 = $927.50. You must also pay 15% tax on the remaining $15,725 ($25,000 - $9275 = $15,725), which is 15% of $15,725 = 0.15 x $15,725 = $2358.75 Your total tax is $927.50 + $2358.75 = $3286.25. In this scenario, your marginal rate is 15% and you are in the 15% tax bracket. TABLE 8.1 2016 Marginal Tax Rates, Standard Deductions, and Exemptions Unmarried, divorced, or legally separated Married and each partner files a separate tax return Married and both partners file a single tax return Unmarried and paying more than half the cost of supporting a child or parent Tax Rate Head of Household up to $13,250 10% 15% 25% Single up to $9275 $9276 to $37,650 $37,651 to $91,150 $91,151 to $190,150 $190,151 to $413,350 $413,351 to $415,050 more than $415,050 Married Filing Separately up to $9275 $9276 to $37,650 $37,651 to $75,950 $75,951 to $115,725 $115,726 to $206,675 $206,676 to $233,475 more than $233.475 Married Filing Jointly up to $18,550 $18,551 to $75,300 $75,301 to $151,900 $151,901 to $231,450 $231,451 to $413,350 $413,351 to $466,950 more than $466,950 28% $13,251 to $50,400 $50,401 to $130,150 $130,151 to $210,800 $210,801 to $413,350 $413,351 to $441,000 more than $441,000 33% 35% 39.6% Standard Deduction $6300 $6300 $12,600 $9300 Exemptions (per person) $4050 $4050 $4050 $4050 EXAMPLE 2 Computing Federal Income Tax SINGLE WOMAN WITH NO DEPENDENTS Gross income: $62,000 Adjustments: $4000 paid to a tax-deferred IRA (Individual Retirement Account) Deductions: $7500: mortgage interest $2200: property taxes $2400: charitable contributions $1500: medical expenses not covered by insurance Tax credit. $500 Calculate the federal income tax owed by a single woman with no dependents whose gross income, adjustments, deductions, and credits are given in the margin. Use the 2016 marginal tax rates in Table 8.1. SOLUTION Step 1 Determine the adjusted gross income. Adjusted gross income = Gross income - Adjustments = $62,000 $4000 = $58,000