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 A’s taxable income is $190,700. Compute A’s tax and average tax rate. What is A’s marginal tax rate?

Taxpayer B’s taxable income is $762,200. Compute B’s tax and average tax rate. What is B’s marginal tax rate?

Answer 1

	Slab rate:
	0 to $ 30,000	=	6%
	$ 30,001 to $70,000	=	10%
	$70,001 to $2,00,000	=	20%
	Above $2,00,000	=	28%
1	A's Taxable Income	=	$       1,90,700
	Computation of A's tax payable:
	On first $30,000	=	$30,000 X 6%	=	$       1,800
	On next $40,000	=	$40,000 X 10%	=	$       4,000
	On remaining $1,20,700	=	$1,20,700 X 20%	=	$     24,140
	Tax payable	=			$     29,940
	A's average tax rate	=	Tax payable / Taxable income
		=	$29,940 / $1,90,700
		=	15.70%
	Marginal tax rate	=	20%
2	B's Taxable Income	=	$       7,62,200
	Computation of B's tax payable:
	On first $30,000	=	$30,000 X 6%	=	$       1,800
	On next $40,000	=	$40,000 X 10%	=	$       4,000
	On next $1,30,000	=	$1,30,000X 20%	=	$     26,000
	On remaining $5,62,200	=	$5,62,200 X 28%	=	$ 1,57,416
	Tax payable	=			$ 1,89,216
	B's average tax rate	=	Tax payable / Taxable income
		=	$1,89,216 / $7,62,200
		=	24.82%
	Marginal tax rate	=	28%