Marginal tax brackets are the tax rates that apply to each additional dollar of income earned.
Which of the following best describes a marginal tax bracket?
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A) The average tax rate an individual pays is the effective tax rate. B) The marginal tax bracket is the tax rate applied to the last dollar of taxable income. C) A tax bracket is The range of income levels to which a specific tax rate applies. D) The total amount of tax an individual owes to the government is their tax liability.
In a progressive tax system, what happens to the tax rate as taxable income increases?
A) In a progressive tax system, the tax rate increases as taxable income increases. B) In a regressive tax system, the tax rate decreases as taxable income increases. C) the tax rate remains the same for all income levels in a flat tax system. D) The tax rate is always related to taxable income in some way.
In the 1980s, the United States underwent significant tax reform, including reducing tax brackets and lowering the top marginal tax rate. This change was intended to simplify the tax code and encourage economic growth.
Which of the following can be subtracted directly from an individual's tax liability?
A) Deductions are expenses that can be subtracted from an individual's gross income to reduce taxable income. B) Credits can be subtracted directly from an individual's tax liability. C) Adjusted gross income is total income minus specific deductions used to determine taxable income. D) Taxable income is the portion of an individual's income subject to taxation.
An individual with a taxable income of $50,000 falls into the 22% marginal tax bracket. Any additional income they earn will be taxed at 22%. If they receive a $1,000 bonus, they will owe an additional $220 in taxes (22% of $1,000).
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Example Series 65 Example Practice Question
As your income grows, the tax man knows, your marginal bracket will rise, so plan and strategize.
Marginal Income Tax = (Taxable Income - Tax Bracket Threshold) * Marginal Tax Rate - Taxable Income: The total income subject to income tax after deductions and exemptions - Tax Bracket Threshold: The minimum income level for a specific tax bracket - Marginal Tax Rate: The tax rate applied to the last dollar of taxable income
1. Determine the taxable income: $85,000 2. Identify the tax bracket threshold: $40,525 (for a single filer in 2021) 3. Identify the marginal tax rate: 22% (for a single filer in 2021) 4. Calculate the marginal income tax: ($85,000 - $40,525) * 22% = $44,475 * 22% = $9,784.50