Suppose in Fiscalville there is a O percent tax on the first

Suppose in Fiscalville there is a O percent tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,000 a $20,000 and a 30 percent tax on income between $20,000 and $30,000. Any income above $30,000 is taxed at 40 percent. Instructions: Round your answers to the nearest whole number a. If your income is $70,000, how much will you pay in taxes? b. Determine your marginal tax rate. percent c. Determine your average tax rate. percent

Solution

For an income of 70,000 find the total tax amount using the schedule provided

Tax amount = 0%*10000 + 20%*(20000 - 10000) + 30%*(30000 - 20000) + 40%*(70000 - 30000)

= 21000

a) Hence You will pay a tax of $21000

b) Marginal tax rate is 40% because income is greater than $3000.

c) Average tax rate = tax amount x 100/ taxable income = 21000*100/70000 = 30%. Hence average tax rate is 30%.