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The Ant family lives in the country of Petertopia, which as described above, has a tax...

The Ant family lives in the country of Petertopia, which as described above, has a tax rate of 2% on the first $20,000 in taxable income, 4% on the next $20,000 in taxable income, and 6% on all taxable income above $40,000. Suppose the country also provides a $3,000 exemption (i.e., deduction) per family member, but there are no other deductions or credits allowed.

Assume that the Ant family has two members. Adam is the sole earner, and he has one child. The family's gross income is $38,000.

The Ant family's taxable income is $_____. The Ant family's marginal tax rate is_____%. The Ant family's total taxes are $_____. The Ant family's average tax rate is_____%. (Please enter only numbers in the blanks, and round numbers to the second decimal place if necessary).

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Answer #1

Family's gross income = $38,000

There are two members in the family.

Per member exemption = $3,000

Total exemption = 2 * $3,000 = $6,000

Taxable income = Family's gross income - Total exemption = $38,000 - $6,000 = $32,000

The Ant family's taxable income is $32,000.

Following table shows the tax brackets -

Tax Bracket Income Tax Rate
I First $20,000 2%
II Next $20,000 4%
III Above $40,000 6%

The taxable income of family is coming in tax bracket II.

The Ant family's marginal tax rate is 4%.

Calculate the total taxes -

Total taxes = [$20,000 * 0.02] + [$12,000 * 0.04] = $400 + $480 = $880

The Ant family's total taxes are $880.

Calculate the average tax rate -

Average tax rate = Total taxes/Taxable income = $880/$32,000 = 0.0275 or 2.75%

The Ant family's average tax rate is 2.75%.

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