Question

Given an individual filing a single tax return and makes a gross $375,000 per year, please answer the 2 following questions. 1) What is the marginal tax rate if this person earns an extra $1? 2) What is the average or effective tax rate for this individual?

Answer 1

SOLUTION:

We are taking 2018 federal income tax brackets. Thus,

Tax Bracket	Rate	Tax Amount	Total Tax
0-$9525	10%	952.50
$9,526 to $38,700	12%	3,500.88	4,453.38
$38,701 to $82,500	22%	9,635.78	14,089.16
$82,501 to $157,500	24%	17,999.76	32,088.92
$157,501 to $200,000	32%	13,599.68	45,688.60
$200,001 to $375,000	37%	64,749.63	110,438.23

It gives marginal tax rate of 37%; and average tax rate = 110,438.23 / 375,000 = 29.45%