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2 March, 18:48

Assume that in year 1 your average tax rate is 20 percent on a taxable income of $20,000. If the marginal tax rate on the next $10,000 of taxable income is 30 percent, what will be the average tax rate if your taxable income rises to $30,000?

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  1. 2 March, 21:42
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    Average Tax rate if income rises to $30,000 is 23.33%

    Explanation:

    Tax on First $20,000 = 20%

    Tax on Next $10,000 = 10%

    Tax on First $20,000 = $20,000 x 20%

    Tax on First $20,000 = $4,000

    Tax on Next $10,000 = $10,000 x 30%

    Tax on Next $10,000 = $3,000

    Total Tax on $30,000 = $4,000 + $3,000

    Total Tax on $30,000 = $7,000

    Average Tax rate = ($7,000 / $30,000) x 100

    Average Tax rate = 23.33%
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