Jorge and Anita, married taxpayers, earn \( \$ 150,000 \) in taxable income and \( \$ 40,000 \) in interest from an investment in City of Heflin bonds. (Use the U.S. tax rate schedule for married filing jointly.) Required: a. If Jorge and Anita earn an additional \( \$ 100,000 \) of taxable income, what is their marginal tax rate on this income? b. What is their marginal rate if, instead, they report an additional \( \$ 100,000 \) in deductions? Note: For all requirements, round your answers to 2 decimal places.

To solve this problem, we need to determine Jorge and Anita's marginal tax rate based on their taxable income and the U.S. tax rate schedule for married filing jointly. ### Known Conditions: - Current taxable income: \( \$150,000 \) - Interest from City of Heflin bonds: \( \$40,000 \) (this is tax-exempt) - Additional taxable income: \( \$100,000 \) - Additional deductions: \( \$100,000 \) ### Step-by-Step Solution: #### a. Marginal Tax Rate on Additional Taxable Income 1. **Determine the new taxable income**: \[ \text{New Taxable Income} = 150,000 + 100,000 = 250,000 \] 2. **Identify the tax brackets for married filing jointly** (for the year 2023): - 10% on income up to \( \$22,000 \) - 12% on income over \( \$22,000 \) up to \( \$89,450 \) - 22% on income over \( \$89,450 \) up to \( \$190,750 \) - 24% on income over \( \$190,750 \) up to \( \$364,200 \) - 32% on income over \( \$364,200 \) up to \( \$462,500 \) - 35% on income over \( \$462,500 \) - 37% on income over \( \$622,050 \) 3. **Determine the marginal tax rate**: - The current taxable income of \( \$150,000 \) falls into the 22% bracket. - The new taxable income of \( \$250,000 \) falls into the 24% bracket. - Therefore, the marginal tax rate on the additional \( \$100,000 \) of taxable income is **24%**. #### b. Marginal Tax Rate on Additional Deductions 1. **Determine the new taxable income with deductions**: \[ \text{New Taxable Income} = 150,000 - 100,000 = 50,000 \] 2. **Identify the tax brackets**: - The new taxable income of \( \$50,000 \) falls into the 12% bracket. 3. **Determine the marginal tax rate**: - Since the taxable income is now \( \$50,000 \), any additional deductions will not change the marginal tax rate because they are already in the 12% bracket. - Therefore, the marginal tax rate on the additional \( \$100,000 \) in deductions is **12%**. ### Final Answers: - a. Marginal tax rate on additional taxable income: **24.00%** - b. Marginal tax rate on additional deductions: **12.00%**