4.) Calculate your child tax credit ($2,000 for each child under 18) and subtract that from your tax to
determine your total income tax for the year. (The credit is lower for those with higher income, but
well ignore that here.)
5.) Calculate your average tax rate (ATR)the proportion of wage/salary income (line 1) paid for this
income tax (line 15).
6.) Using lines 1 and 15 in the last two columns, calculate your marginal tax rate (MTR) on the last $1,000
earned in 2040.
7.) Calculate your share of the payroll taxes (ignoring the half that the firm passes to you in the form of
lower wages)7.65% of your wage/salary income. (If youve chosen an income above $137,700, the
tax is only 1.45% for the dollars earned above this cap). Then, recalculate your average and marginal
tax rates.
example 2020 2030 2040 2040 (4$1,000 M 70,000 24,000 46,000 5,136 4,000 Year Household Type (S, M, HH) Line I: Wage/Salary Income Line 8: Standard Deduction Line 10: Taxable income Line 11: "Income Tax" Line 12: Child Tax Credit Line 15: Total "Income Tax" Average Tax Rate(%) Marginal Tax Rate(%) Payroll Tax Income Tax + Payroll Tax (in $) ATR (%) --Income & Payroll MTR (%) ---Income & Payroll 1.136 N/A N/A N/A 1.62% N/A 5,355 6,491 9.27% NA N/A N/A N/A What did you learn from this exercise? example 2020 2030 2040 2040 (4$1,000 M 70,000 24,000 46,000 5,136 4,000 Year Household Type (S, M, HH) Line I: Wage/Salary Income Line 8: Standard Deduction Line 10: Taxable income Line 11: "Income Tax" Line 12: Child Tax Credit Line 15: Total "Income Tax" Average Tax Rate(%) Marginal Tax Rate(%) Payroll Tax Income Tax + Payroll Tax (in $) ATR (%) --Income & Payroll MTR (%) ---Income & Payroll 1.136 N/A N/A N/A 1.62% N/A 5,355 6,491 9.27% NA N/A N/A N/A What did you learn from this exercise 
