Consider the following hypothetical income tax brackets for a married couple. As

ID: 2441593 • Letter: C

Question

Consider the following hypothetical income tax brackets for a married couple. Assume for simplicity there are no exemptions or deductions.

Income

Tax Rate

?$0-$20,000

10%

?$20,000-$50,000

30%

?$50,000-$100,000

45%

Over? $100,000

60%

Suppose the? couple's income is $80,000.

What is the? couple's marginal tax? rate?

The? couple's marginal tax rate is 45%.

What is their average tax? rate?

The? couple's average tax rate is ___percent. ?(Enter your response as a real number rounded to one decimal? place.)

Income

Tax Rate

?$0-$20,000

10%

?$20,000-$50,000

30%

?$50,000-$100,000

45%

Over? $100,000

60%

ANSWER:

Tax to be paid upto $20,000 is 10% , so tax will be 10% * 20,000 = $2,000

tax to be paid from $20,000 to $50,000 is 30% , so tax will be 30% * 30,000 = $9,000

tax to be paid from $50,000 to $100,000 is 45% , so tax will be 45% * 30,000 = $13,500

total tax paid = $2,000 + $9,000 + $13,500 = $24,500

total income = $80,000

average tax rate = total tax paid / total income = $24,500 / $80,000 = 0.30625 or 30.625% or 30.6%

so the average tax rate is 30.6%

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