If Celeste has $47,000 in taxable income, what will her tax liability be given the following tax rates?
On Taxable Income ...
The Tax Rate is ...
Up to $7,000
From $7,000 to $30,000
From $30,000 to $76,000
From $76,000 to $168,000
From $168,000 to $352,000
What you have here is a progressive income tax. You need to calculate the tax that is owed on the amount of money made in each tax bracket and then add the amounts together to get the total tax owed.
So, the first $7,000 that she made is taxed at 10%. You figure that by dong 7000*.1, which gets you $700.
Then, you take the next $23,000 of her income (from $7,000 to $30,000) and you multiply that by .15 because that is the marginal tax rate for that income range. 23000*.15 = $3,450.
From there, she makes $17,000 more in income ($47,000 - $30,000). All of that is taxed at 25%. 17000*.25 = $4250.
So now you have her tax from each bracket and you need to add them up. $4250 + $3450 + $700 = $8400.
This means that her tax liability is $8400. As you can see, you have to do each bracket separately. You can't just take her income and multiply it by the marginal rate for the highest bracket she reaches.