Suppose that Carson earns 60000 per year but must pay income

Suppose that Carson earns $60,000 per year but must pay income taxes according to the tax schedule as shown below. Income $O to $7,000 $7,000 to $35,000 $35,000 to $75,000 $75,000 to $142,000 Over $142,000 Tax Rate (%) 25 25 25 25 25 Instructions: Round your answers to the nearest whole number a. According to this table, what type of income tax does Carson face? Proportional tax b. Assume that Carson has no tax exemptions or deductions. How much in income taxes must Ca rson pay? What is Carson\'s marginal tax rate? 25 percent What is his average tax rate? 25 percert

Solution

With respect to tax schedule, tax rate is same for each income bracket. This means tax system is proportional.

In such case, proportional rate is applied to each tax payer.

Proportional tax rate in the given case is 25 percent.

So, Carson will pay 25% of his income as tax.

Income = $60,000

Tax rate = 25% or 0.25

Calculate the tax to be paid by Carson -

Tax to be paid = $60,000 * 0.25 = $15,000

Thus,

Carson must pay $15,000 in income taxes.

Carson\'s income lies in third income tax bracket. Tax rate corresponding to this tax bracket is 25%.

So,

Carson\'s marginal tax rate is 25 percent.

Average tax rate = Tax paid/income = $15,000/$60,000 = 0.25 or 25%

So,

Carson\'s average tax rate is 25 percent.