Question

Government G levies an income tax with the following rate structure:

Percentage Rate			Bracket
	6	%	Income from –0– to $30,000
	10		Income from $30,001 to $70,000
	20		Income from $70,001 to $200,000
	28		Income in excess of $200,000

Required:

1. Taxpayer A’s taxable income is $122,500. Compute A’s tax and average tax rate. What is A’s marginal tax rate?
2. Taxpayer B’s taxable income is $210,000. Compute B’s tax and average tax rate. What is B’s marginal tax rate?

Answer 1

Computation of Taxes on Mr A's Taxable income of $122500
	Taxable Income	Rate	Tax $
First	30000	6%	1800
Next	40000	10%	4000
Next	52500	20%	10500
Total Income	122500
Total Tax			16300
Average Tax =	Tax / Income
	16300/122500		13.31	%
Marginal Tax Rate		20%
Computation of Taxes on Mr B's Taxable income of $210000
	Taxable Income	Rate	Tax $
First	30000	6%	1800
Next	40000	10%	4000
Next	130000	20%	26000
Next	10000	28%	2800
Total Income	210000
Total Tax			34600
Average Tax =	Tax / Income
	34600/210000		16.48	%
Marginal Tax Rate		28%