Pierre earned $180,000 in wages. Katarina earned $180,000, all in dividends and
ID: 2813788 • Letter: P
Question
Pierre earned $180,000 in wages. Katarina earned $180,000, all in dividends and long-term capital gains. Calculate the total tax owed by each individual (FICA and income taxes Compare their overall tax rates Assume both individuals are single and take the standard deduction. Use the tax rates, the special rates for dividends and capital gains and the FICA tax rate information given below EEB Click the icon to view the table of 2013 Marginal Tax Rates, Standard Deductions, and Exemptions Click the icon to view the special tax rates for dividends and capital gains. What is the total tax owed by Pierre (FICA and income taxes)? (Round to the nearest cent as needed.) What is the total tax owed by Katarina (FICA and income taxes)? (Round to the nearest cent as needed) Enter your answer in each of the answer boxes. ve for Later 57 PM 9/9/2018 40 0 Type here to searchExplanation / Answer
1. Taxes owed by Pierre
FICA Tax = $113700 * 7.65% + ($180000 - $113700 ) * 1.45%
FICA Tax = $9659.40
Net Taxable Income = Wages earned - Standard deduction - exemption = $180000 - $6100 - $3900
Net Taxable Income = $170000
Income Taxes = $8925 * 10% + $27325 * 15% + $51600 * 25% + $82150 * 28%
Income Taxes = $40893.25
Total Taxes owed by Pierre = FICA Taxes + Income taxes = $40893.25 + $9659.40
Total Taxes owed by Pierre = $50552.65
2. Taxes owed by Katarina
FICA Taxes = $0 (There will be no FICA taxes on Dividends and Long term capital gains on sale of stock)
Net Taxable Income = All Income - Standard deduction - exemption = $180000 - $6100 - $3900
Net Taxable Income = $170000
Income Taxes = $170000 * 15%
Income Taxes = $25500
Total Taxes owed by Katarina = FICA Taxes + Income taxes = $0 + $25500
Total Taxes owed by Katarina = $25500
3. Comparing overall tax rate
Pierre tax Rate = Tax Owed / Income = $50552.65 / $180000 = 28%
Katarina tax Rate = Tax Owed / Income = $25500 / $180000 = 14%
Pierre's overall tax rate of 28% is higher than katarina's overall tax rate of 14%