University of Iowa Family Tax Deductions Questions

(The first few questions have been already answered for understanding, please see the attached image for the actual questions)

1. The Anderson family consists of married couple Hannah and Jonathan, and their young daughter Eva. Hannah is a software designer making $58,000 per year, and Jonathan is an office manager making $46,000 per year.

(a). Should they file their taxes jointly or seperately?

Jointly: $9,039

Separately: $9,509They should file jointly

(b). Determine the FICA taxes for both Hannah and Jonathan.

Hannah:

Social Security tax: $3,596

Medicare Tax: $841

Jonathan:

Social Security tax: $2,852

Medicare Tax: $667

Medicare tax if filed jointly: $1,508

Social security tax if filed jointly: $6,448

(©). (w) (4 points) Whether you chose to have the couple file jointly or separately in part (a), let’s
think of Hannah and Jonathan’s monthly paychecks combined into one. Based on the income tax
for the filing status you chose in part (a) and the FICA tax you calculated in part (b), how much
are they actually taking home each month, combined? (You can assume the taxes are taken out
equally through the 12 months of the year.)
(d). (w) (4 points) Hannah and Jonathan want to buy a house for their growing family. Many
financial planners recommend that you spend no more than 25% of your take-home monthly pay
on monthly house payments (mortgage payment). So how much should they budget for a
mortgage payment, at most?
(e). (w) (5 points) So what is the largest mortgage amount they can take out, if they want to stay
within the budget set in part (d)? Assume they can get a 30-year term at 4.25% APR
compounded monthly.
Current Tax Information
The following information is for the 2018 tax year (that is, the taxes that were filed in April 2019). So it’s
technically not exactly current, but there are only slight differences between the values here and the
ones for the 2019 tax year.
AGI = adjusted gross income
Standard Deduction:
$12000 for single taxpayers and married taxpayers filing separately
$18000 for heads of households (single but with dependents)
$24000 for married taxpayers filing jointly and surviving spouses
.
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Common Tax Credits (simplified):
Child Tax Credit: $2000 per child if AGI is under $200,000 (or $400,000 if married filing jointly);
can only be claimed by one parent
Earned Income Tax Credit: If you have earned income through wages or self-employment:
Credit of $6431 if you have 3 or more qualifying children and AGI is under $49194 (or
$54884 if you’re married filing jointly)
Credit of $5716 if you have 2 qualifying children and AGI is under $45802 (or $51492 if
you’re married filing jointly)
Credit of $3461 if you have 1 qualifying child and AGI is under $40320 (or $46010 if
you’re married filing jointly)
Credit of $519 if you have no children and AGI is under $15270 (or $20950 if you’re
married filing jointly)
NOTE: Married couples filing separately can’t get this credit.
American Opportunity Credit: Up to $2500 per student for tuition, etc., during the first four
years of college if AGI is under $90,000 (or $180,000 if married filing jointly)
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FICA tax rates:
6.2% Social Security tax on first $128,700 of wages
1.45% Medicare tax on first $200,000 of wages (or $250,000 if married filing jointly or $125,000
if married filing separately)
2.35% Medicare tax on all wages in excess of $200,000 (or $250,000 if married filing jointly or
$125,000 if married filing separately)
Individual Taxpayers
If Taxable income Is Between:
The Tax Due is:
0 – $9,525
10% of taxable income
$9,526 – $38,700
$952.50 +12% of the amount over $9,525
$38,701 – $82,500
$4,453.50 + 22% of the amount over $38,700
$82,501 – $157,500 $14,089.50 + 24% of the amount over $82,500
$157,501 – $200,000 $32,089.50 +32% of the amount over $157,500
$200,001 – $500,000 $45,689.50 + 35% of the amount over $200,000
$500,001+
$150,689.50 + 37% of the amount over $500,000
Married Individuals Filing Joint Returns and Surviving Spouses
If Taxable income is Between:
The Tax Due is:
0 – $19,050
10% of taxable income
$19,051 – $77,400
$1,905 + 12% of the amount over $19,050
$77,401 – $165,000
$8,907 + 22% of the amount over $77.400
$165,001 – $315,000 $28,179 + 24% of the amount over $165,000
$315,001 – $400,000
$64,179 + 32% of the amount over $315,000
$400,001 – $600,000
$91,379 + 35% of the amount over $400,000
$600,001 +
$161,379 +37% of the amount over $600,000
+
Married Filing Separately
If Taxable Income Is Between:
The Tax Due is:
$0 – $9,525
10% of taxable income
$9,526 – $38,700
$952.50 + 12% of the amount over $9,525
$38,701 – $82,500
$4,453.50 + 22% of the amount over $38,700
$82,501 – $157,500 $14,089.50 + 24% of the amount over $82,500
$157,501 – $200,000 $32,089.50 + 32% of the amount over $157,500
$200,001 – $300,000 $45,689.50 + 35% of the amount over $200,000
$300,001 +
$80,689.50 + 37% of the amount over $300,000
Heads of Household
If Taxable income Is Between:
The Tax Due is:
0 – $13,600
10% of taxable income
$13,601 – $51,800 $1,360 + 12% of the amount over $13,600
$51,801 – $82,500 $5,944 + 22% of the amount over $51,800
$82,501 – $157,500 $12,698 +24% of the amount over $82,500
$157,501 – $200,000 $30,698 + 32% of the amount over $157,500
$200,001 – $500,000 $44,298 + 35% of the amount over $200,000
$500,001 +
$149,298 + 37% of the amount over $500,000