Suppose the tax rate on the first $10,000 income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $50,000. What is the marginal and average tax rate for Family A?

Question

Quizplus · Accepted Answer

The marginal tax rate for Family A, with an income of $50,000, falls into the 20 percent bracket because this is the rate applied to the next dollar earned beyond their current income. The average tax rate is calculated by dividing the total tax paid by the total income. For the first $10,000, there is no tax; for the next $20,000, the tax is 10 percent ($2,000); and for the next $20,000 (up to $50,000), the tax is 20 percent ($4,000). Therefore, the total tax paid is $6,000. The average tax rate is $6,000 divided by $50,000, which equals 12 percent.

Suppose the Tax Rate on the First $10,000 Income Is