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18 October, 01:37

An engineer has an income that puts him in the 25% federal income tax bracket and at the 10% state incremental tax rate. She has an opportunity to earn extra $500 by doing a small consulting job. What will be his effective tax rate on the additional income

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  1. 18 October, 02:04
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    The answer is 32.5%

    Explanation:

    Solution

    Recall that:

    Engineer income tax = 25%

    Incremental tax rate = 10%

    Extra earnings = $500

    Now, what ill be his effective tax rate on the additional income

    Thus

    Federal income tax = 500 * 25 % = $125

    The state tax = (500 - 125) * 10 % = $37.50

    Effective tax rate = (125 + 37.50) / $500

    =162.50 / $ 500

    = 0.325 or 32.5% that is (0.325 * 100)

    Hence the effective tax rate is 32.5 %
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