459. Government Method of Computing the Tax. — The method of computing the tax suggested by the instructions sent out by the United States government consists in computing the normal tax and the surtax separately and then adding the two. The normal taxes under the Acts of 1916 and 1917 are computed separately and added to find the total normal tax. 460. Computing the Normal Tax. To compute the normal tax of a single person subtract $1000 from his net income and take 2% of the remainder. This gives his normal tax under the act of 1917. Then subtract $3000 from his income and take 2% of the remainder. This gives his normal tax under the law of 1916. The sum of these two is his total normal tax. In the case of a married person subtract the amounts indicated in §§ 454, 455. 461. Computing the Surtax. The method of computing the surtax is best shown by an example. Find the surtax on a net income of $114,000. From the table of total surtax we find that the surtax on $100,000 is $12,300. We also find in the table that the total surtax rate on incomes between $100,000 and $150,000 is 27%. Hence we take 27% of the amount by which the income exceeds $100,000, namely of $14,000. Surtax on $100,000 (by table) = $12,300 Surtax on 14,000 (27%) Total surtax = 3,780 $16,080 Example 1. Find the combined income tax under the acts of 1916 and 1917 of a single person having a net income of $87,000. PROBLEMS 1. A married person with three dependent children has an annual income of $47,500. Find his income tax under the act of 1916 and also his combined tax under the acts of 1916 and 1917. 2. Find the combined income tax of a single person under the acts of 1916 and 1917, if his annual income is $6000. Find the average rate on his whole income. 3. Find the tax of a single person on $79,000 under the acts of 1916 and 1917. Find the average rate on the whole income. 4. Find the tax of a single person on $500,000 under the acts of 1916 and 1917. Find the average rate on the whole income. 5. Compare the results in examples 2, 3, 4 to see how the average rate of tax increases as the income increases under the combined acts. 6. What is the income tax of a single person on a yearly income of $6000 under the act of 1916? What is the average rate of tax on his whole income? 7. What is the income tax of a single person on $79,000 under the act of 1916? What is the average rate of tax on his whole in come? 8. What is the income tax of a single person on a yearly income of $500,000 under the act of 1916? What is the average rate on his whole income? 9. Compare examples 6, 7, 8 to see how the average tax rate increases under the act of 1916 as the income increases. 10. Compute the surtax table in the last column on page 294. Suggestion. The total surtax on $40,000 is found as follows: |