Final answer:
Mason's effective tax rate is determined by dividing his tax liability ($4,150) by his taxable income ($48,000) and then multiplying by 100 to get a percentage. The rounded result is approximately 8.65%, making it Mason's average rate at which his income is taxed, distinct from his marginal tax rate. The correct option is A.
Step-by-step explanation:
To calculate Mason's effective tax rate, we need to divide his total tax liability by his taxable income and convert it to a percentage. Mason's tax liability is $4,150, and his taxable income is $48,000. So, to find the effective tax rate, we perform the following calculation: $4,150/$48,000 = 0.086458333. To express this as a percentage, we multiply by 100, giving us an effective tax rate of approximately 8.65%.
The effective tax rate represents the average rate at which an individual's income is taxed. It is different from the marginal tax rate, which refers to the rate of tax on the last dollar of income. In our example, the marginal tax rate would be the rate applied to the top part of Mason's income, but for the effective tax rate, we consider his entire taxable income.
In the United States, tax brackets are structured so that higher income levels are taxed at a higher marginal rate. However, due to deductions and credits, the effective rate is often lower than the marginal rate. This concept is pivotal in understanding one's overall tax burden.