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College of Science and Engineering
Mathworks

Taxes

1040_tax_form

Taxes are financial charges made by a governing body such as a city, state, or federal government on an individual or property. One example is the sales tax on items that you purchase. Another example is the income tax on money that you earn.

  • What are some reasons governments charge a tax?
  • How are the tax revenues used?
  • What are some differences between a sales tax and an income tax?
  • Determine the sales tax rate for your city. Are all sales tax rates the same in your state? Find two other tax rates. Are the sales tax rates the same in Illinois? Compare the tax rate in Chicago with your city. How much would a shirt costing $29.99 cost with tax in Chicago? How much would the same shirt cost in your city?

EXAMPLE 1

Susan has a net income of $69,500 and is single. Michelle and David are married and have a joint income of $69,500. Compare how much income tax Susan owes to how much income tax Michelle and David collectively owe. In Example 2, you will compute the tax with a tax rate schedule. Which method is easier?

tax_table
2014 Federal Income Tax Table

Solution

Based on the Federal Income Tax Table above, Susan will pay $13,238 in federal income taxes, as she is single. Michelle and David will collectively pay $9,521 as they will be filing as "married filing jointly".

EXAMPLE 2

Susan has a net income of $69,500 and is single. Michelle and David are married and have a joint income of $69,500. Compare how much income tax Susan owes to how much income tax Michelle and David collectively owe. This time, use the Federal Income Tax Brackets provided below to determine the amount of federal income taxes owed.

2015_tax_brackets
2015 Federal Income Tax Brackets

Solution

Susan will be filing as Single.

We see that for any income between $37,451 and $90,750, she will have to pay $5,156.25 plus 25% of the amount over $37,450. Her income of $69,500 is $32,050 over $37,450. So she will have to pay 25% of $32,050, or $8,012.50.

Her total federal income tax will be: $5,156.25 + $8,012.50 = $13,168.75

Michelle and David will be filing as Married Filing Jointly. For people filing as married, for any income between $18,451 and $74,900, they will have to pay $1,845 plus 15% of the amount over $18,450. Their collective income of $69,500 is $51,050. So they will have to pay 15% of $51,050, or $7,657.50.

Their total federal income tax will be: $1,845 + $7,657.50 = $9,502.50

Exercises

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