In a state where an engineer pays state income tax, the state tax is deductible on the federal tax return but the federal tax is not deductible on the state return

Economics Dec 03, 2020

In a state where an engineer pays state income tax, the state tax is deductible on the federal tax return but the federal tax is not deductible on the state return. Assuming that the engineer's income is subject to 6% state tax rate and 46% federal rate, what is the combined rate?

Expert Solution

Effective tax rate = State tax rate + [Federal tax rate x (1 - State tax rate)]

= 6% + [46% x (100 - 6)%]

= 6% + (46% x 94%)

= 6% + 43.24%

= 49.24%

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