Suppose the tax rate on the first $10,000 income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $40,000 and Family B has income of $100,000. What is the marginal and average tax rate for each family?

Question

Damian Bauer

Business

4 January, 05:21

Suppose the tax rate on the first $10,000 income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $40,000 and Family B has income of $100,000. What is the marginal and average tax rate for each family?

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Answers (1)

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Amari · Answer 1

Answer: Mrginal tax rate family A = 16.67%, Family B = 13%

Explanation:

Family A income is $30000

Marginal Tax Rate = Total Change in taxes/income

taxes paid = 10000 x 0% + 20000 x 20% + 10000 x 30%

taxes paid = 0 + 2000 + 3000 = 5000

Marginal Tax Rate = 5000/30000 = 0.166666 = 16.67

Family B income is $100000

taxes paid = 10000 x 0% + 20000 x 20% + 10000 x 30% + * 20000 x 40%

taxes paid = 0 + 2000 + 3000 + 8000 = 13000

Marginal Tax Rate = 13000/100000 = 13%

*100000 exceeds 80000 by 20000