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Indy Currently Earns $50,000 in Taxable Income and Pays $8000

Question 44

Multiple Choice

Indy currently earns $50,000 in taxable income and pays $8000 in taxes.Suppose that Indy faces a marginal tax rate of 25 percent and his boss offers him a raise of $2000 per year.Indy should:


A) accept the raise because his after-tax income will rise by $1500.
B) accept the raise because his after-tax income will rise by $2000.
C) reject the raise because his after-tax income will fall by $4500.
D) reject the raise because his after-tax income will fall by $6000.
If the raise is $2000 per year and the marginal tax rate is 25 percent,taxes will rise by $500 and after-tax income will rise by $2000 - $500 = $1500.

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