Module 4 Practice Problems
Problem 4.1: You purchase a new Microsoft Surface from Staples at the old Washington Mall for $799.99. Find the total price you will have to pay at checkout. The tax rate for Washington County is 6%.
Answer: $847.99
Problem 4.2: You go to Aldi and buy $95.00 worth of food. But, as is often the case with Aldi, you also buy $50 worth of stuff in the random stuff aisle. While food is not taxable in Pennsylvania, the other stuff is and is taxed at a rate of 6%. Calculate your grand total.
Answer: $148
Problem 4.3: You buy several electronics from Target. Your grand total is $375.50. Assuming the sales tax rate is 6%, calculate the subtotal; that is, the total before tax.
Answer: $354.25
Problem 4.4: CHALLENGE: One thing we did not discuss was sales tax on automobile purchases. In Pennsylvania, you pay the typical sales tax rate for your county on the sale price of the vehicle MINUS any trade-in value. Suppose you want to purchase a new Subaru Forester for $28,845. You have visited Budd Baer (Washington County, 6%) and Bowser Subaru (Allegheny County, 7%). Calculate the grand total price if you have no trade-in. Calculate the grand total price if both dealerships offer you $12,000 for your trade-in.
Answers: No trade – Wash = $30,575.70; Allg = $30,864.15; Trade-in – Wash = $17,855.70; Allg = $18,024.15
Problem 4.5: While visiting a friend in Iceland, you purchase groceries for 325 174, 77 ISK. Iceland has a VAT of 24%. Calculate the price of the groceries.
Answer: 262 237,72 ISK
For the following tax problems, use the tax system we used earlier.
| Rate | Income |
| 10% | Up to $20,000 |
| 12% | $20,001 to $80,000 |
| 22% | $80,001 to $170,000 |
| 24% | $170,001 to $325,000 |
| 32% | $325,001 to $415,000 |
| 35% | $415,000 to $625,000 |
| 37% | Over $625,000 |
Additionally, we will use the following deductions/credits:
- Standard deduction is $25,000.
- Child tax credit is $2,000 per child under 17 years old.
- Student loan interest deduction up to $2,500 per family.
- Any other deductions/credits will be given explicitly.
Problem 4.6: The Howard family has an income of $615,000. They have $39,000 in itemized deductions, 2 children under 17 (NOTE: Under the US tax system, they would not qualify for the child tax credit, but we will just let every child have the tax credit in our class), and have paid $129,000 in taxes already. Calculate their taxes due/refund due and their average tax rate.
Answers: Owe $21,850; ATR = 24.14%
Problem 4.7: The Tims family has an income of $165,000. They have $7,000 in itemized deductions, 2 children under 17, have paid $4,000 in student loan interest, are eligible for $1,000 in other tax credits, and have paid $22,000 in taxes already. Calculate their taxes due/refund due and their average tax rate.
Answers: Refund of $5,150; ATR = 10.2%
Problem 4.8: The Ellis family has an income of $75,000. They have $5,000 in itemized deductions, 0 children under 17, and have paid $6,000 in taxes already. Calculate their taxes due/refund due and their average tax rate.
Answers: Refund of $400; ATR = 7.47%
Problem 4.9: Treat each family in problems 4.6-4.8 as a single individual. Calculate the Social Security tax payment (and average tax rate) and Medicare tax payment (and average tax rate) for each. Ignore the employer contribution. The tax brackets are given below.
Social Security
| Employee Rate | Employer Rate | Income |
| 6.2% | 6.2% | Up to $142,800 |
| 0.0% | 0.0% | Over $142,800 |
Medicare
| Employee Rate | Employer Rate | Income |
| 1.45% | 1.45% | Up to $200,000 |
| 2.35% | 1.45% | Over $200,000 |
Answers: Howard [SS = $8,853.60 (1.44%), Medi = $12,652.50 (2.06%)]; Tims [SS = $8,853.60 (5.36%), Medi = $2,932.50 (1.45%)]; Ellis [SS=$4,650 (6.2%), Medi = $1,087.50 (1.45%)]
