Suppose that a four-person family can earn up to $15,120 and pay no income tax, and that income in the lowest tax bracket is taxed at 15 percent. Given the fact that the earned income tax credit falls by 21 cents for every additional dollar of gross income earned above $11,000, what is the marginal tax rate for a family of four if its gross income is $20,000?

Question

Quizplus · Accepted Answer

The marginal tax rate at a gross income of $20,000 includes the 15% income tax plus the reduction in the earned income tax credit, which is 21 cents (or 21%) for every dollar earned above $11,000. Therefore, the marginal tax rate is 15% (income tax) + 21% (reduction in credit) = 36%.

Suppose That a Four-Person Family Can Earn Up to $15,120