Refer to Scenario 12-3. At what level of income would the taxpayer's marginal tax rate be 30 percent and her average tax rate be 25 percent?

A) $20,000
B) $40,000
C) $60,000
D) $80,000

Question

Refer to Scenario 12-3. At what level of income would the taxpayer's marginal tax rate be 30 percent and her average tax rate be 25 percent?A) $20,000B) $40,000C) $60,000D) $80,000

liyah plowden · Accepted Answer

Final Answer : D, Explanation :  To have an average tax rate of 25%, the taxpayer's total tax divided by her total income must equal 0.25. If her income is $80,000, she pays $8,000 on the first $40,000 (20%) and $12,000 on the next $40,000 (30%), totaling $20,000 in taxes. $20,000/$80,000 = 0.25, so her average tax rate is 25%. At $80,000, her marginal tax rate is 30% because the next dollar earned would be taxed at 30%.

Refer to Scenario 12-3. At what level of income would the taxpayer's marginal tax rate be 30 percent and her average tax rate be 25 percent?

A) $20,000
B) $40,000
C) $60,000
D) $80,000

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