Calculating Income Tax- Bracket 2

Lesson 2: Personal Taxes - Calculating Income Tax Bracket 2

   Constructing Knowledge

When calculating income tax on income that falls in the second tax bracket, you must make two separate calculations. You must calculate the income tax for each tax bracket separately, and then add the income tax from the first tax bracket to the income tax from the second bracket income tax.

Federal and Provincial Income Tax Table

Bracket	Tax Rate	Income Level
1	25%	the first $43 561 of income
2	32%	income over $43 561 but under $87 123
3	36%	income over $87 123 but under $135 054
4	39%	income over $135 054

Recall: The maximum income tax paid in the first tax bracket is $10 890.25.

   Multimedia

A video describing calculating income tax when income is in the second tax bracket is provided.

EXAMPLE 1

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Billy earned $55 250 last year, as a first year plumbing apprentice. How much income tax did she pay?

Solution

Earnings of $55 250 falls into the second tax bracket. Billy's gross pay should be split according to the tax brackets. The first bracket is $43 561.

Step 1: Calculate how much of her earnings fall into the second tax bracket.

Second tax bracket earnings	= $55 250 - $43 561
	= $11 689

Step 2: Calculate how much income tax is paid in each bracket.

Income tax can then be calculated by adding together the Income tax from each bracket.

Income tax	= first bracket tax + second bracket tax
	= (tax rate × first bracket pay) + (tax rate × second bracket pay)
	= (25% × $43 561) + (32% × $11 689)
	= (0.25 × $43 561) + (0.32 × $11 689)
	= $10 890.25 + $3 740.48
	= $14 630.73

Billy paid $14 630.73 in income tax.

Alternate Solution

Because Billy paid the full first tax bracket amount, the first tax bracket calculation can be skipped and replaced by $10 890.25, which is the maximum first bracket amount.

Step 1: Calculate how much of her income is in the second bracket, and then calculate the income tax for that bracket.

second tax bracket earnings	= $55 250 − $43 561
	= $11 689 of income is in the second tax bracket

Income tax	= first bracket tax + second bracket tax
	= $10 890.25 + (tax rate × second bracket pay)
	= $10 890.25 + (32% × $11 689)
	= $10 890.25 + (0.32 × $11 689)
	= $10 890.25 + $3 740.48
	= $14 630.73

Billy paid $14 630.73 in income tax.

EXAMPLE 2

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What is the maximum income tax paid in the first two tax brackets?

Solution

Income tax	= first bracket tax + second bracket tax
	= tax rate × first bracket pay + tax rate × second bracket pay
	= 25% × $43 561 + 32% × $43 562
	= 0.25 × $43 561 + 0.32 × $43 562
	= $10 890.25 + $13 939.84
	= $24 830.09

A maximum of $24 830.09 would be paid in the first two tax brackets.




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