Scenario 12-4. A taxpayer faces the following tax rates on her income:

-Refer to Scenario 12-4.The taxpayer faces
A) a marginal tax rate of 20 percent when her income rises from $40,000 to $40,001.
B) a marginal tax rate of 20 percent when her income rises from $30,000 to $30,001.
C) a marginal tax rate of 0 percent when her income rises from $30,000 to $30,001.
D) a marginal tax rate of 10 percent when her income rises from $40,000 to $40,001.

Question

Scenario 12-4. A taxpayer faces the following tax rates on her income:
 
-Refer to Scenario 12-4.The taxpayer faces
A) a marginal tax rate of 20 percent when her income rises from $40,000 to $40,001. 
B) a marginal tax rate of 20 percent when her income rises from $30,000 to $30,001. 
C) a marginal tax rate of 0 percent when her income rises from $30,000 to $30,001. 
D) a marginal tax rate of 10 percent when her income rises from $40,000 to $40,001.

Quizplus · Accepted Answer

The marginal tax rate is the rate at which an additional dollar of income is taxed. In Scenario 12-4, the taxpayer faces a tax rate of 10% on income up to $30,000 and a tax rate of 20% on income above $30,000. Therefore, the taxpayer would face a marginal tax rate of 20% when her income rises from $30,000 to $30,001, as this is the point at which her income exceeds $30,000 and the tax rate increases to 20%.