Mary Watson is 24 years old and single, lives in an apartment, and has no dependents.

Mary Watson is 24 years old and single, lives in an apartment, and has no dependents. Last year she earned $40,900 as a sales assistant for Focused Business Analytics; $3,681 of her wages was withheld for federal income taxes. In addition, she had interest income of $229.

The standard deduction in 2011 was $5,800 for single. The exemption was claimed to be worth $3,700. The appropriate tax rate schedule is shown below:

Sample Tax Rate Schedules

Tax rates levied on personal income vary with the amount of reported taxable income and the taxpayer’s filing status.

2011 Tax Rate Schedules

Schedule X-If your filing status is Single If your taxable income is: The tax is:

0 – $8,500_ _ _ _10%

$8,500 – 34,500_ _ _ _ $850.00 + 15%

34,500 – 83,600_ _ _ _ 4,750.00 + 25%

83,600 – 174,400_ _ _ _ 17,025.00 + 28%

174,400 – 379,500_ _ _ _ 42,449.00 + 33%

379,150_ _ _ _100,016.50 + 35%

a. Estimate her taxable income.

b. Estimate her tax liability. Round the answer to the nearest cent. Use unrounded values in later calculations. (Hint: Use the tax rate schedules given in Exhibit 3.3 to determine her tax liability.)

c. Estimate her tax refund or tax owed. Enter tax owed, if any, as negative amount. Round the answer to the nearest cent. 

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