Question

Tim earns income of $60,000 per year and pays $21,000 per year in taxes. Tim paid 20 percent in taxes on the first $30,000 he earned. What was the marginal tax rate on the second $30,000 he earned?

a. 20 percent
b. 30 percent
c. 50 percent
d. 70 percent

Answer 1

c. 50 percent

Step-by-step explanation:

The amount of tax to paid by Tim on the second income he earned during the year shall be calculated as follow:

Amount of tax on 2nd income=21,000-(20%*30,000)

=21,000- 6,000

=$15,000

Marginal tax rate on 2nd income=Amount of tax on 2nd income/2nd income earned during year

Marginal tax rate=15,000/30,000=50%

So the answer is c. 50 percent