Question

Assume a single taxpayer is taxed at 10% on the first $9,275 of taxable income, 15% on the next $28,375 of income, and at 25% for the following $53,500 of income. What is the average tax rate for that individual if her taxable income is $42,000?

Answer 1

Answer:

14.93%

Explanation:

Given:

For taxable income $9,275, tax rate = 10%

For taxable income $28,375, tax rate = 15%

For taxable income $53,500, tax rate = 25%

Now,

Tax on income =  tax rate  × taxable income

thus,

Total Tax on first $9,275 = $9,275 × 10% =  $927.5

and,

Total tax on next $28,375 = $28,375 × 15% = $4,256.25

Therefore, the total income that has been taxed till the $9,275 + $28,375

= $37,650.

and, the amount left to be taxed = $42,000 - $37,650 = $4,350

Thus,

Tax on remaining $4,350 = $4,350 × 25% = $1,087.5

Total tax = $927.5  + $4,350  + $1,087.5  = $6,365

Therefore,

The average tax rate = $\frac{\textup{Total tax}}{\textup{Taxable income}}\times100$

or

The average tax rate = $\frac{6,365}{42,000}\times100$

or

Average tax = 14.93%