Question

Calculate the Average tax rate at both levels of income noted below. Calculate the marginal tax rate when the income increases to $45,000 from $40,000. Show your work.

                                    INCOME                                            INCOME TAX

                                    $40,000                                             $3,000

                                    $45,000                                             $4,050

Answer 1

Answer : Average tax rate for $40,000 income = (Income tax / Income) * 100 = (3,000 / 40,000) * 100

Therefore, Average tax rate for $40,000 income = 7.5% .

Average tax rate for $45,000 income = (Income tax / Income) * 100 = (4,050 / 45,000) * 100

Therefore, Average tax rate for $45,000 income = 9% .

Change in Tax = 4,050 - 3,000 = $1,050

Change in Income = 45,000 - 40,000 = $5,000

Marginal tax rate = (Change in Tax / Change in Income) * 100 = (1,050 / 5,000) * 100

Therefore, Marginal tax rate = 21%.