Question

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?a.12 percent and 20 percent, respectivelyb.12 percent and $50,000, respectivelyc.$6,000 and 12 percent, respectivelyd.$6,000 and 20 percent, respectively

Answer 1

total tax liability = $6,000

marginal tax rate = 20%

Step-by-step explanation:

total tax liability = ($4,000 x 10%) + [($50,000 - $40,000) x 20%] = $4,000 + $2,000 = $6,000

The marginal tax rate is the tax rate applicable to an additional dollar of income. Since the $50,000 income falls into the second bracket, the marginal tax rate is 20%.