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

Taxpayer O earns $68,500 annually during years 1 through 10. Taxpayer P earns $26,500 annually during years 1 through 5 and $110,500 annually during years 6 through 10. Assume the tax rate bracket has not changed.

How much total income does each taxpayer earn over the 10-year period? Compute each taxpayer’s average tax rate for the 10-year period.

Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

• Required A
• Required B

Compute each taxpayer’s average tax rate for the 10-year period. (Round your answers to 1 decimal place.)

How much total income Does each taxpayer earn over the 10-year period? Total Income Taxpayer O $13,800selected answer incorrect Taxpayer P $56,860selected answer incorrect
	Average Tax Rate Taxpayer O 20.0selected answer incorrect % Taxpayer P 28.0selected answer incorrect %

Answer 1

Requirement 1:

Total income of taxpayers over 10 years- period

Tax Payer O = Annual Earnings * Number of years

= $68,500 * 10 years

= $685,000

Tax Payer P = Annual Earnings * Number of years

= ($26,500 * 5 years) + ($110,500 * 5 years)

= $132,500 + $552,500

= $685,000

Requirement 2:

Tax Paid by Tax payer O annually = 6% on $30,000 + 10% on $38,500

= $1,800 + $3,850

= $5,650

Total Tax paid by Tax Payer O over 10 years period = $5,650 * 10 years i.e. $56,500

Average Tax Rate of Tax Payer O = Total Tax Paid / Total Income

= $56,500 / $685,000

= 8.248%

Tax paid by Tax payer P annually during first 5 years = 6% of $26,500 i.e. $1,590

Tax paid by Tax payer P annually during first 6 - 10 years = 6% of $30,000 + 10% of $40,000 + 20% of $40,500

= $1,800 + $4,000 + $8,100

= $13,900

Total Tax paid by Tax Payer P over 10 years period = ($1,590 * 5) + ($13,900 * 5)

= $7,950 + $69,500

= $77,450

Average Tax Rate of Tax Payer P = Total Tax Paid / Total Income

= $77,450 / $685,000

= 11.307%