Section 2.1 Calculating Taxes
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Example 2-1E
See It
Cassandra lives in a state that has a state income tax and uses a progressive
tax rate as shown in the table. She works as a crane operator and her annual
taxable income is $43,350.52. Use the table to determine Cassandra’s state
income tax.
Strategy
Use the tax table shown in Figure 2-4.
Solution
Step 1: Use the table to determine which row contains the range in which
Cassandra’s income falls.
$43,350.52 falls between $36,000 and $48,000.
In other words, $36,000 $43,350.52 $48,000.
Step 2: Use the formula given in the table for Cassandra’s income range.
$960 plus 6% of taxable income over $36,000
Step 3: Determine the amount of taxable income over $36,000 by subtracting
$36,000 from Cassandra’s total annual income.
taxable income over $36,000 = annual taxable income – $36,000
taxable income over $36,000 = $43,350.52 – $36,000
taxable income over $36,000 = $7,350.52
Step 4: Convert the tax rate from a percentage to a decimal by moving the
decimal two places to the left.
6% → 0.06
Figure 2-4.
Progressive Tax
Table
Taxable income is
over…
But not over… Tax is…
$0 $6,000 1% of taxable income
$6,000 $18,000 $60 plus 2% of taxable income over $6,000
$18,000 $24,000 $300 plus 3% of taxable income over $18,000
$24,000 $36,000 $480 plus 4% of taxable income over $24,000
$36,000 $48,000 $960 plus 6% of taxable income over $36,000
$48,000 No limit $1,680 plus 8% of taxable income over $48,000