Question

Determine marginal tax rate and average tax rate in each of the following cases.

1. Single taxpayer, taxable income of $$35,438, tax liability of $$4,057.
2. Married taxpayers, taxable income of $70,069, tax liability of $8,021.

Answer 1

As per data ,

single taxpayer

Taxable income =$35438

Total tax liability=$4057

Then average tax rate formula=Total tax payable/Total taxable income

=$4057/$35438= 0.114

Average tax rate is 0.11 or 11%

As Married taxpayers ,

Total taxable income = $70,069

Total taxable payable liability = $8,021

Formula for average tax rate is= Total tax payable/Total taxable income

= $8021/$70069 = 0.11

Average tax rate is 0.11 or 11%

Marginal tax rate formula = ∆tax payable/∆taxable income

Adding values,

Change in taxable income = $70069-$35438=$34631

Change in tax liability=$8021-$4057=$3964

Then marginal tax rate is = $3964/$34631=0.114

Marginal tax rate is=0.11 or 11%.