Question

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

A. Mr. LV’s taxable income is $60,400. Compute his tax and average tax rate. What is Mr. LV’s marginal tax rate?

B. Ms. JC’s taxable income is $320,400. Compute her tax and average tax rate. What is Ms. JC’s marginal tax rate?

Ms. JC’s taxable income is $320,400. Compute her tax and average tax rate. What is Ms. JC’s marginal tax rate? (Round your percentage answers to 2 decimal places and other answer to the nearest dollar amount.)

Income tax ------------

Average tax rate -------------%

Marginal tax rate -------------%

Answer 1

Ans:

1. Taxable Income= 60,400

Tax liability= 10% on 20,000+15% of {60,400-20,000}

=> 2,000+ 15% of 40,400

=> 2,000+ 6,060

=> 8,060

Average Tax rate= Tax liability/ Taxable Income

=> 8,060/60,400

=> 13.34%

Marginal Tax Rate= 15% As Taxable Income Falls between Slab 20,001 to 75,000

2. Taxable income=320,400

Tax liability= 10% of 20,000+ 15 % of {20,000-75,000}+25% of {75,000-160,000}+ 30% of {320,000-160,000}

=> 2,000+ 8,250+ 21,250+ 48,000

=> 79,500

Average Tax Rate= Tax liability/ Taxable Income

=> 79,500/320,400

=> 24.81%

Marginal Tax rate is 30% As Taxable Income Falls in Excess of 160,000