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?

Question

Quizplus · Accepted Answer

- In year 1, the total tax paid is 20% of $20,000 = $4,000.
- If taxable income rises to $30,000, then the additional $10,000 will be taxed at a marginal rate of 30%.
- Therefore, the tax on the additional $10,000 will be 30% of $10,000 = $3,000.
- The total tax paid will be $4,000 + $3,000 = $7,000.
- The average tax rate will be total tax paid divided by taxable income: $7,000 / $30,000 = 0.2333 or about 23%.

Assume That in Year 1 Your Average Tax Rate Is