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Taxation: Marriage penalty, AMT exemption, FICA tax

1. In 2011, Lisa and Fred, a married couple, have taxable income of $795,000. If they were to file separate tax returns, Lisa would have reported taxable income of $380,000 and Fred would have reported taxable income of $415,000.

What is the couple's marriage penalty or benefit?

2. Olga is married and files a joint tax return with her husband.

What amount of AMT exemption may she deduct under each of the following alternative circumstances? (Use 2011 exemption amounts.)
Her AMTI is $112,500
Her AMTI is $216,000.
Her AMTI is $535,000.

3. Rasheed works for Company A, earning $395,000 in salary during 2011.
Assuming he has no other sources of income, what amount of FICA tax will Rasheed pay for the year?

4. Kyle worked as a free-lance software engineer for the first three months of 2011. During that time, he earned $46,000 of self-employment income. On April 1, 2011, Kyle took a job as a full-time software engineer with one of his former clients, Hoogle Inc. From April through the end of the year, Kyle earned $87,000 in salary.
What amount of FICA taxes (self-employment and employment-related) does Kyle owe for the year?

Solution Preview

1. The following table shows the rate structure for 2011:

Tax rate Single filers Married filingjointly or qualifyingwidow/widower Married filing separately
10% Up to $8,500 Up to $17,000 Up to $8,500
15% $8,501 - $34,500 $17,001 - $69,000 $8,501- $34,500
25% $34,501 - $83,600 $69,001 - $139,350 $34,501 - $69,675
28% $83,601 - $174,400 $139,351 - $212,300 $69,676 - $106,150
33% $174,401 - $379,150 $212,301 - $379,150 $106,151 - $189,575
35% $379,151 or more $379,151 or more $189,576 or more

http://www.bankrate.com/finance/taxes/2011-tax-bracket-rates.aspx
(part of the table has been deleted for clarity)

Married filing joint would result in a tax liability of:
17000 x 10% = 1700
(69000 - 17000) x 15% = 7800
(139350 - 69000) x 25% = 17588
(212300 - 139350) x 28% = 20426
(379150 - 212300) x 33% = 55060
795000 - 379151 x 35% = 145547
Total tax of 248121
Effective rate is 31.2%

Using the same methodology, a married filling separate with a taxable income of 380000 would pay 117935 which consists of 850 + 3900 + 8794 + 10213 + 27530 + 66648.
The effective rate is 31.0%

The ...

Solution Summary

The solutions to the problems are carefully explained with calculations and references.

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