Question

Consider Michelle and Gladys, two neighbors who each earn the same salary. Gladys pays less in federal income taxes than Michelle does. Which of the following is a possible explanation for this?
a.
Michelle and Gladys are in different tax brackets.
b.
Gladys pays less in federal income taxes, but Michelle pays less in state income taxes.
c.
Gladys has more money in savings than Michelle.
d.
Gladys is taking advantage of more deductions and credits than Michelle.

Answer 1

d.

Even with the same salary, differences in deductions and tax credits change taxable income and tax liability. More deductions/credits reduce Gladys's federal tax even though their salaries are equal.