Question

1. Country A levies an individual income tax with the following rate structure:

Percentage Rate			Bracket
	10	%	Income from –0– to $20,000
	15		Income from $20,001 to $75,000
	25		Income from $75,001 to $160,000
	30		Income in excess of $160,000

Required:

1. Mr. Levi’s taxable income is $69,200. Compute his tax and average tax rate. What is Mr. Levi’s marginal tax rate?
2. Ms. Jinn’s taxable income is $184,400. Compute her tax and average tax rate. What is Ms. Jinn’s marginal tax rate?

Answer 1

Ans: For Levi

1. Tax liability= 10% from 0 to 2,000+ 15% from 20,001 to 69,200

=> $2,000+ 15%{ 69,200-20,000}

=> $2,000+ 15% 49,200

=> $2,000+ 7,380

=> 9,380

Average Tax rate= Tax/ income

=> 9,380/69,200*100

=> 13.55%

Marginal Tax rate will be 15% as its taxable income lies between the slab of 15% i.e. 20,000 to 75,000

2. For Jinn's

Tax liability= 10% from 0 to 20,000+ 15% from 20,000 to 75,000+ 25% from 75,000 to 160,000+ 30% in excess of $160,000

=> 2,000+ 8,250+ 21,250+ 30% of {184,400-160,000}

=> 31,500+ 30% of 24,400

=> 31,500+ 7,320

=> 38,820

Average Tax= Tax/ taxable income

=> 38,820/184,400*100

=> 21.05%

Marginal Tax rate will be 30% as its taxable income lies between the slab of 30% i.e. in excess of 160,000