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Chapter 8: Problem 9

a single man with a taxable income of \(\$ 15,000\) and a \(\$ 2500\) tax credit

Short Answer

Expert verified
The final tax amount after applying the tax credit is $0, and $890.50 will be refunded.

Step by step solution

01

Calculate Tax For First Bracket

First calculate the man's tax for the first tax bracket, which is 10% on amounts up to $9,525. The man's income is $15,000, hence \(0.10 * \$9525 = \$952.50.\) This is the tax for the first bracket.
02

Calculate Tax For Second Bracket

Now, calculate the tax for the amount of income that is within the second tax bracket (i.e., the income remaining after subtracting the upper limit of the first bracket from the total income). In this case, it would be \( \$15,000 - \$9,525 = \$5,475.\) This lies in the second bracket, which has a tax rate of 12%. Calculate the tax for this part: \(0.12 * \$5,475 = \$657.\)
03

Add Up Taxes From Both Brackets

To get the total tax before credit, add up the tax from both brackets: \( \$952.50 + \$657 = \$1,609.50.\) This is the total tax without considering the tax credit.
04

Subtract Tax Credit

Now subtract the tax credit from the total tax. In case the tax credit is greater than the total tax, the final tax amount becomes zero. \( \$1,609.50 - \$2,500 = - \$890.50.\) Since this amount is less than zero, the final tax amount is \( \$0,\) and the remaining $890.50 will be refunded.

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