Sue earns income of $80,000 per year. Her average tax rate is 50 percent. Sue paid $5,000 in taxes on the first $30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the marginal tax rate on the remaining $50,000?

Question

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The marginal tax rate on the first $30,000 is calculated by dividing the taxes paid ($5,000) by the income earned ($30,000), which gives 16.67 percent. For the remaining $50,000, since the average tax rate is 50 percent and Sue earns $80,000, she pays a total of $40,000 in taxes. Subtracting the $5,000 paid on the first $30,000, she pays $35,000 on the remaining $50,000, resulting in a marginal tax rate of 70 percent for the remaining income.

Sue Earns Income of $80,000 Per Year