Assume that in year 1 your average tax rate is 20 percent on a taxable income of $20,000. If the marginal tax rate on the next $10,000 of taxable income is 30 percent, what will be the average tax rate if your taxable income rises to $30,000?

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Quizplus · Accepted Answer

The average tax rate on the initial $20,000 is 20%, which equals $4,000 in taxes. The next $10,000 is taxed at a marginal rate of 30%, adding $3,000 in taxes. Therefore, with a total income of $30,000, the total tax paid is $7,000, making the average tax rate $7,000/$30,000 = 23.33%.

Assume That in Year 1 Your Average Tax Rate Is