If personal income up to and including $25,000 is not taxed, income of $25,001 to $50,000 is taxed at 10%, and income over $50,000 is taxed at 25%, a family earning income equal to $60,000 will pay a marginal tax rate of _____ and an average tax rate of _____.

Question

Quizplus · Accepted Answer

The marginal tax rate is the rate on the last dollar earned, which is 25% for income over $50,000. The average tax rate is the total tax paid divided by total income, which is $5,000 (10% of $25,000) + $2,500 (25% of $10,000) = $7,500 in taxes on $60,000 income, resulting in an average tax rate of 12.5%. However, the correct average tax rate calculation should be $7,500/$60,000 = 12.5%, but the choice C mistakenly states 8.3%.

If Personal Income Up to and Including $25,000 Is Not