In 2014, Jack and Diane Heart are married with two children, ages 10 and 12. Jack works full-time and earns an annual salary of $80,000, while Diane works as a substitute teacher and earns approximately $25,000 per year. Jack and Diane expect to file jointly and do not itemize their deductions. In the fall of this year, Diane was offered a full time teaching position that would pay her an additional $20,000.
a. Calculate the marginal tax rate on the additional income, excluding employment taxes, to help Jack and Diane evaluate the offer.
b. Calculate the marginal tax rate on the additional income, including employment taxes, to help Jack and Diane evaluate the offer.
c. Calculate the marginal tax rate on the additional income, including self-employment taxes, if Diane earned an additional $20,000 as a self-employed contractor ($20,000 self-employment income in addition to the $25,000 as an employee).