Final answer:
The average tax rate is 20% and the marginal tax rate is 25% for a person making $100,000. The marginal tax rate is the tax rate imposed on the last dollar of income earned. In this case, since the tax rate is 25% on income above $20,000, the marginal tax rate for a person making $100,000 would be 25%.
Step-by-step explanation:
The average tax rate represents the portion of income that goes towards paying taxes. To calculate the average tax rate, we need to find the total amount of tax paid and divide it by the total income. In this case, for a person making $100,000, the first $20,000 is exempted from taxes, so the taxable income is $100,000 - $20,000 = $80,000. The tax on this income is 25% of $80,000, which is $20,000. Therefore, the average tax rate is $20,000 / $100,000 = 0.2 or 20%.
The marginal tax rate is the tax rate imposed on the last dollar of income earned. In this case, since the tax rate is 25% on income above $20,000, the marginal tax rate for a person making $100,000 would be 25%.
For a person making $100,000, the average tax rate is 20%, calculated by dividing the tax paid of $20,000 by the total income. The marginal tax rate is 25%, which is the rate taxed on any income above the exempted amount of $20,000.
If a person is making $100,000 a year and the tax system exempts the first $20,000 of income, then this person would only be taxed on the remaining $80,000 of their income. Since the income above $20,000 is taxed at 25%, the person would pay $20,000 in taxes (25% of $80,000). To determine the average tax rate, we divide the total tax paid by the total income, which is $20,000 divided by $100,000, giving us an average tax rate of 20%. The marginal tax rate, on the other hand, is the rate at which the last dollar of income is taxed, which in this case is 25%.