Mr Cann has taxable income of $100,000. His marginal tax rate is 28 percent and his effective, or average, tax rate is 25 percent. He decides to accept a consulting project that will bring him revenues of $1,000. How much will he net after subtracting federal income tax?

Question

Quizplus · Accepted Answer

Mr. Cann's effective tax rate of 25% means he pays $0.25 for each dollar of taxable income. Therefore, his taxable income will increase by $1,000 from the consulting project, and his tax liability will be $1,000 x 28% = $280. The amount Mr. Cann nets after subtracting federal income tax is $1,000 - $280 = $720. So, the correct option is D.

Mr Cann Has Taxable Income of $100,000