Progressive Tax Examples

Progressive Tax Examples

Progressive taxProgressive TaxProgressive tax refers to the increase in the average rate of tax with the increase in the amount of taxable income so that the liability of paying heavy taxes passes to those who earn a higher income and those with lower income can have a relaxation from the heavy income tax obligations.read more can be defined as a taxpayer’s ability taxation system wherein the government or the authority imposes lower income tax on the person whose income falls in the lower bracket and imposes higher income tax on the person whose income falls in the higher bracket which means the tax progresses as the taxpayer’s income rises and hence it can be concluded that higher earners pay a higher rate and low-income earners pay lower rate tax. In this article, we discuss the top 4 practical examples of a progressive tax.

Progressive Tax Examples

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Top 4 Practical Examples of Progressive Tax

You can download this Progressive Tax Examples Excel template here – Progressive Tax Examples Excel template

Example #1

Mr. A is a salaried person, and he has earned the following income during the year:

Progressive Tax Example 1

Now it is year-end, and he wants to file a tax return and wants to know what his tax liability will be.

He has approached CPA, and he is about to calculate his tax liability with the following tax rates.

Tax RateSingle
9.00%Up to $9,525
11.00%$9,526 to $38,700
21.00%$38,701 to $82,500

Based on the above information, you are required to calculate the tax liability of Mr. X

Solution:

First of all, we need to calculate the total income of Mr. X.

Progressive Tax Example 1.2

Total Income = 12000 + 8400 + 6500 + 1200

Total Income = 28100

Now we shall calculate its tax liability. Up-to 9,525, 9% tax will be liable and then from 28,100 less 9,525 will be 11% which is 2,043.25.

Example 1.3.1

Total tax Liable = 857.25 + 2043.25

Total tax Liable = 2900.50

Thus, the total tax for the year will be 2,900.50.

Example #2

John and Johny have been recently hired by Big MNC from their campus recruitment, but however, their income structure is different.

Progressive Tax Example 2

You are required to calculate net incomeCalculate Net IncomeNet Income formula is calculated by deducting direct and indirect expenses from the total revenue of a business.. It is the most important number for the Company, analysts, investors, and shareholders of the Company as it measures the profit earned by the Company over a period of time.read more in hand and tax payable by both at year-end assuming below tax rates. Also, state the reasons for tax differences.

Tax RateSingle
9.00%Up to $9,525
11.00%$9,526 to $38,700
21.00%$38,701 to $82,500
23.00%$82,501 to $157,500

Solution:

First of all, we need to calculate the total income, and then we shall calculate tax liability.

John’s Salary total income will be –

Progressive Tax Example 2.3

Total Income = 15000 + 5000 + 1000 + 17000

Total Income = 38000 

Johny’s Salary total income will be –

Example 2.4

Total Income = 24000 + 6000 + 500 + 25000

Total Income = 55500

Now we shall calculate its tax liability. Up-to 9,525, 9% tax will be liable, and then from 28,100 less 9,525 will be 11%, and then above 38,701 21% tax would be applicable.

John’s total tax will be –

Progressive Tax Example 2.5

Total Tax = 857.25 + 3132.25

Total Tax = 3989.50

Johny’s total tax will be –

Example 2.6.0

Total Tax = 857.25 + 3209.25 + 3527.79

Total Tax = 7594.29

John’s Net Income will be –

Progressive Tax Example 2.7

Net Income = 38000 – 3989.50

Net Income = 34010.50

Johny’s Net Income will be –

Example 2.8

Net Income = 55500 – 7594.29

Net Income = 47905.71

Net income shall be 38000 – 3989.50, which equals 34,010.50 for John, and for Johnny, it would be 55,500 less 7,594.29, which shall equal to 47,905.71.

The reason for tax differences is because Johnny falls in a 21% bracket, and he is paying the higher tax due to higher income, and it can be noted the tax progresses ith income progresses.

Example #3

Kennedy has been living in the UK for around 10 years, and his income has increased since then. He is earning £150,000 yearly now. Below are the tax rates of the UK.

Progressive Tax Example 3

Based on the above information, in this example of progressive tax, you are required to calculate the net income that Mr. Kennedy is currently earning.

Solution:

The UK also follows the Progressive tax rate system, and we shall calculate its tax liability by calculating 20% from 11,851 to 46,350, and then similarly from 46,351 to 150,000, the rate applicable will be 40%.

Total Tax Liable for Mr. Kennedy:

Example 3.1

Total Tax Liable = 41460 

Net income of Mr. Kennedy will be –

Progressive Tax Example 3.2

Total Tax Liable = 150000 – 41460

Total Tax Liable = 108540

Therefore, the Net income of Mr. Kennedy shall be 150,000 less 41,460, which equals  1,08,540.

Example #4

Mr. Morgan has the following income details:

  • Business Income: £45000
  • Dividend Income: £15000
  • Interest Income: £3000

The government has exempted the dividendThe Government Has Exempted The DividendDividend is that portion of profit which is distributed to the shareholders of the company as the reward for their investment in the company and its distribution amount is decided by the board of the company and thereafter approved by the shareholders of the company.read more income from tax. Mr. Morgan has shifted from the US to the UK, and he has hired a tax attorney, based on below tax rates, you are required to calculate his tax liability.

Progressive Tax Example 4.1

Solution:

First of all, we need to calculate the total income.

Example 4.2

Total Income = 45000 + 3000

Total Income = 48000

Total tax Liable will be –

Progressive Tax Example 4.3

Total tax Liable = 6900 + 660

Total tax Liable = 7560

The UK also follows a Progressive tax rate system, and we shall calculate its tax liability by calculating 20% from 11,851 to 46,350, and then similarly from 46,351 to 150,000, the rate applicable will be 40%.

The total tax liability would be £7,560.

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