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The following information relates to two married couples:

Smiths Millers
Salary (earned by one spouse) $30,000 $95,000
Taxable interest income 20 1000
Deductible IRA contribution 0 6000
Itemized deductions 9000 26,400
Withholding 750 8500

Required:
Compute the 2020 tax due or refund due for each couple. Assume that any restrictions on itemized deductions have been applied. Ignore credits.

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Answer:

                                                     Smiths ($)     Millers ($)

Salary (earned by one spouse)    $30,000        $95,000

Taxable interest income               $20               $1,000    

Gross Income                                $30,020        $96,000

Less: Deductible IRA                     $0                  $6,000  

Contribution

Adjusted Gross Income (AGI)      $30,020        $90,000

Less: Itemized Deductions            $900             $26,400

Taxable Income                             $29,120          $63,600

Tax as per tax brackets                 $3,106             $7,244

Withholding                                    $750               $8,500

Tax due or (refund due)                $2,356            ($1,256)

Workings on Tax as per tax brackets

Smiths

($19,400 * 10%) + [($29,120 - $19,400) * 12%]

= $3,106  

Millers

($19,400 * 10%) + [($63,600 - $19,400) * 12%]

= $7,244

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