Asked by Aidan Packer on May 03, 2024
Verified
Sue earns income of $80,000 per year. Her average tax rate is 50 percent. Sue paid $5,000 in taxes on the first $30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the marginal tax rate on the remaining $50,000?
A) 6.25 percent and 50.00 percent, respectively
B) 10.00 percent and 70.00 percent, respectively
C) 16.67 percent and 60.00 percent, respectively
D) 16.67 percent and 70.00 percent, respectively
Marginal Tax Rate
The percentage of tax applied to your income for each additional dollar of income.
Average Tax Rate
The proportion of total income that is paid in taxes, calculated by dividing the total taxes paid by the total income.
Income
Cash inflow, regularly obtained, as compensation for work or earnings from invested capital.
- Acquire a clear understanding of the notions of marginal and average tax rates.
- Leverage understanding of tax percentages to compute tax dues.
Verified Answer
BG
Boi Gia LuongMay 06, 2024
Final Answer :
D
Explanation :
The marginal tax rate on the first $30,000 is calculated by dividing the taxes paid ($5,000) by the income earned ($30,000), which gives 16.67 percent. For the remaining $50,000, since the average tax rate is 50 percent and Sue earns $80,000, she pays a total of $40,000 in taxes. Subtracting the $5,000 paid on the first $30,000, she pays $35,000 on the remaining $50,000, resulting in a marginal tax rate of 70 percent for the remaining income.
Learning Objectives
- Acquire a clear understanding of the notions of marginal and average tax rates.
- Leverage understanding of tax percentages to compute tax dues.