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 is the average tax rate when income is $50,000?

a. 12 percent
b. 20 percent
c. 15 percent
d. 10 percent

Answer 1

The average tax rate for an income of $50,000, with a 10% tax on the first $40,000 and 20% on the income above $40,000, is a. 12%.

Step-by-step explanation:

To find the average tax rate when income is $50,000, we first calculate the total tax paid. On the first $40,000, a 10% tax rate applies, and on the remaining $10,000, a 20% tax rate applies.

Therefore, tax on the first $40,000 = 10% of $40,000 = $4,000.

Tax on the remaining $10,000 = 20% of $10,000 = $2,000.

Total tax paid = $4,000 + $2,000 = $6,000.

Now, the average tax rate is calculated as the total tax divided by total income:

Average tax rate = Total tax paid / Total income = $6,000 / $50,000 = 0.12 or 12%.

Therefore, the correct answer is (a) 12 percent.