Asked by Emily Feasel on May 12, 2024
Verified
The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?
A) 20 percent and 12 percent, respectively
B) 20 percent and 15 percent, respectively
C) 10 percent and 12 percent respectively
D) 10 percent and 15 percent respectively
Marginal Tax Rate
The rate at which the last dollar of a taxpayer’s income is taxed, indicating the percentage of additional income that will be taxed.
Average Tax Rate
The portion of total income that is paid as taxes, calculated by dividing the total amount of taxes paid by the total income.
Tax Liability
The total amount of tax that an individual or business owes to the government, based on their income or revenue.
- Gain insight into the concepts of marginal and average tax rates.
- Implement tax rate knowledge to determine tax liability.
Verified Answer
LH
Lauren HuleattMay 13, 2024
Final Answer :
A
Explanation :
Karen's marginal tax rate is 20 percent because this is the rate she pays on any income over $40,000. To find her average tax rate, we calculate the total tax paid ($6,000) as a percentage of her total income. Since she paid $6,000, which is $2,000 more than what she would have paid on the first $40,000 (10% of $40,000 = $4,000), she must have earned $10,000 at the 20% rate (since $2,000 is 20% of $10,000). Therefore, her total income was $50,000 ($40,000 + $10,000), and her average tax rate is $6,000/$50,000 = 12%.
Learning Objectives
- Gain insight into the concepts of marginal and average tax rates.
- Implement tax rate knowledge to determine tax liability.