Question

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The Glorious Republic of Gisslovia assesses a 10% Social tax on the first $144,000 earned. The...

The Glorious Republic of Gisslovia assesses a 10% Social tax on the first $144,000 earned. The income tax is a flat 25% on all income in excess of $48,000. For each of the following incomes, determine the total amount of social tax, income tax , total tax (social tax + income tax) and the average tax rate (total tax/income):

a) $48,000

b) $96,000

c) $144,00

d) $192,000

e) $240,000

Expert Solution

Solution :-

Social Tax = 10% , Highest Upto $14,400

Income Tax = 25% above $48,000

(a) If Income = $48,000

Social Tax = $48,000 * 10% = $4,800

Income tax = 25% on excess of $48,000 = $0

Total Tax = $4,800 + $0 = $4,800

Average tax Rate = $4,800 / $48,000 = 10%

(b) If Income = $96,000

Social Tax = $96,000 * 10% = $9,600

Income tax = 25% on excess of $48,000 = 25% * ($96,000 - $48,000 ) = $12,000

Total Tax = $9,600 + $12,000 = $21,600

Average tax Rate = $21,600 / $96,000 = 22.50%

(C) If Income = $144,000

Social Tax = $144,000 * 10% = $14,400

Income tax = 25% on excess of $48,000 = 25% * ($144,000 - $48,000 ) = $24,000

Total Tax = $24,000 + $14,400 = $38,400

Average tax Rate = $38,400 / $144,000 = 26.67%

(d) If Income = $192,000

Social Tax = $192,000 * 10% Upto $14,400 = $14,400

Income tax = 25% on excess of $48,000 = 25% * ($192,000 - $48,000 ) = $36,000

Total Tax = $14,400 + $36,000 = $50,400

Average tax Rate = $50,400 / $192,000 = 26.25%

(e) If Income = $240,000

Social Tax = $240,000 * 10% Upto $14,400 = $14,400

Income tax = 25% on excess of $48,000 = 25% * ($240,000 - $48,000 ) = $48,000

Total Tax = $14,400 + $48,000 = $62,400

Average tax Rate = $62,400 / $240,000 = 26.00%

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Rahul Sunny answered 2 years ago

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