Mr. and Mrs. Delta are filing a joint tax return. Together...

Mr. and Mrs. Delta are filing a joint tax return. Together they had an income of $\$ 100,830$ last year. Their total deductions were $\$ 16,848$ . a. What was Mr. and Mrs. Delta’s taxable income? b. What is the tax on the amount in part a? c. The Delta’s received a combined education and child tax credit of $\$ 2,500 .$ How much tax must they pay after applying the tax credits? d. If their employers withheld $\$ 10,201$ in federal income tax, how much money will they owe to the federal government?

Mr. and Mrs. Delta are filing a joint tax return. Together they had an income of $\$ 100,830$ last year. Their total deductions were $\$ 16,848$ .
a. What was Mr. and Mrs. Delta’s taxable income?
b. What is the tax on the amount in part a?
c. The Delta’s received a combined education and child tax credit of $\$ 2,500 .$ How much tax must they pay after applying the tax credits?
d. If their employers withheld $\$ 10,201$ in federal income tax, how much money will they owe to the federal government?

Key Concepts

Withholding and Payment of Taxes

Withholding refers to the portion of an employee’s income that is deducted by the employer and sent directly to the government as an advance payment of the taxpayer’s annual tax liability. After computing the tax liability and applying any credits, the amount withheld is compared to the tax due to determine if the taxpayer owes additional money or is due a refund.

Tax Credits

Tax credits are amounts that reduce the tax liability dollar-for-dollar. Unlike deductions, which lower the taxable income, credits directly decrease the computed tax, thereby reducing the overall tax burden.

Tax Liability Calculation

Tax liability calculation involves applying the applicable tax rates or tax brackets to the taxable income to determine the total amount of tax owed before any credits are applied. This calculation often incorporates different marginal rates for different levels of taxable income.

Deductions

Deductions are specific amounts that taxpayers are allowed to subtract from their gross income, reducing the amount of income that is subject to tax. They may arise from standard deductions or various itemized expenses, and they play a critical role in lowering overall tax liability.

Gross Income

Gross income is the total earnings or revenue an individual or household receives before any deductions or adjustments are made. It forms the starting point for determining taxable income by providing the basis from which deductions are subtracted.

Taxable Income

Taxable income is the portion of income that remains after all allowable deductions have been subtracted from the gross income. It serves as the basis for calculating how much tax an individual or household owes under the tax regulations.

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