Answer
No tax is owed to the government as tax credits exceed the tax computed.
Work Step by Step
Tax owed is calculated based on the taxable income and the percentage associated with it as per the \[2012\] marginal tax rates. The \[2012\] marginal tax rates are assigned to various income ranges called margins. The tax payer comes under the \[15%\] tax bracket.
In order to compute tax owed, Table 8.1 of Section 8.2 can be used as a reference.
In this case, it is required to compute the tax owed by a single man with a taxable income of \[\$15,000\] and tax credit of \[\$2500;\] the percentage deducted on the first \[\$8700\] is \[10%.\]
\[\begin{align}
& \text{Tax}\ \text{liability}\ \text{on}\ \text{first}\ \$8700=\text{Rate}\times\\text{income}\\&=0.10\times\$8700\\&=\$870\end{align}\]
On the remaining \[\$6300\] is \[15%.\]
\[\begin{align}
& \text{Tax}\ \text{liability}\ \text{on}\ \text{the}\ \text{remaining}\ \$6300=\text{Rate}\\times\text{income}\\&=0.15\times\$6300\\&=\$945\end{align}\]
Total tax owed will be calculated by subtracting tax credits from tax computation.
\[\begin{align}
& \text{Total}\ \text{tax}\ \text{owed}=\text{Tax credits }-\text{ tax computation} \\
& =\$2,500-\left(\$870+\$945\right)\\&=\left(\$685\right)\end{align}\]
Tax owed is calculated based on the taxable income and the percentage associated with it as per the 2012 marginal tax rates and subtracting the tax credits from this tax computed.
Tax computation is done on the basis of the percentage given for each status. Tax credits help in defraying college cost.
No tax is owed to the government as tax credits exceed the tax computed.
