Suppose you are offered a $5,000 raise at work.Your current income tax rate is 25 percent.Your marginal income tax rate is 28 percent.Your average tax rate is 20 percent.The additional income tax you owe to the federal government (assuming you stay in the same rate bracket)if you accept the job will be

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Quizplus · Accepted Answer

The additional income you will be receiving is $5,000. 
Your average tax rate is 20%, so you will owe $1,000 in income tax on this additional income. 
Your marginal tax rate is 28%, which means any additional income you earn will be taxed at this rate. 
Therefore, the additional income tax you owe on the $5,000 raise is ($5,000 x 28%) - ($5,000 x 25%) = $1,400 - $1,250 = $150.
So, the total income tax you owe on the additional $5,000 raise is $1,000 + $150 = $1,150. 
Therefore, the best choice would be to accept the job offer as the raise will still result in a net income increase of $3,850 after accounting for the additional income tax.

Suppose You Are Offered a $5,000 Raise at Work