Assume that in year 1 your average tax rate is 10 percent on a taxable income of $10,000. If the marginal tax rate on the next $10,000 of taxable income is 15 percent, what will be the average tax rate if your taxable income rises to $20,000?

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Quizplus · Accepted Answer

The average tax rate is calculated by dividing the total tax paid by the total income. For the first $10,000, the tax is $1,000 (10%). For the next $10,000, the tax is $1,500 (15%). Total tax is $2,500 on $20,000 income, resulting in an average tax rate of 12.5%.

Assume That in Year 1 Your Average Tax Rate Is