MaKenna earns income of $80,000 per year.Her average tax rate is 30 percent.MaKenna paid 20 percent in taxes on the first $30,000 she earned.What was the marginal tax rate on the rest of her income

Question

Quizplus · Accepted Answer

MaKenna paid 20% tax on the first $30,000 of her income, which comes to $6,000 [(20%)*($30,000)]. The remaining $50,000 of her income is taxed at an average rate of 30%, which comes to $15,000 [(30%)*($50,000)]. Therefore, her total tax payment is $21,000 ($6,000 + $15,000).

The marginal tax rate is the percentage of tax paid on the next dollar of income earned. MaKenna's income above $30,000 is $50,000. Her marginal tax rate on this income can be calculated by finding the tax she paid on the first $30,000, subtracting it from the total tax paid and then dividing by the income that was taxed at the higher rate.

Marginal tax rate = (Total tax paid - Tax paid on income up to $30,000) / ($50,000) 
Marginal tax rate = ($21,000 - $6,000) / $50,000 
Marginal tax rate = 0.3

Therefore, the marginal tax rate on the rest of her income above $30,000 is 30%. Option (C) is the correct answer.

MaKenna Earns Income of $80,000 Per Year