In: Economics
Suppose a country has a progressive income tax system that uses the tax table below.
Taxable Income | ||
From | To | % Tax |
0 | 50,000 | 10% |
50,001 | 100,000 | 20% |
101,000 | 200,000 | 30% |
Over 200,000 | 40% |
Assume Joe earns $200,000 of taxable income. How much income tax does he pay?
Group of answer choices
A.80,000
B.45,000
C.60,000
D.25,000
Till income 50,000 he will pay 10%. So, for first 50,000 he will pay tax = 10% of 50,000 = (10/100)*50,000 = 5000
From 50,001 to 100,000 he will pay 20%. So for next 50,000 of his income he will pay tax = 20% of 50,000 = (20/100)*50,000 = 10,000.
Now remaining taxable income is 200,000 - 100,000 = 100,000. From 100,001 to 200,000 he will pay 30%. So for next 100,000 of his income he will pay tax = 30% of 100,000 = (30/100)*100,000 = 30,000.
So Amount of tax he will pay in total = 5,000 + 10,000 + 30,000 = 45,000
Hence, the correct answer is (B) 45,000.