Suppose you are a typical person in the U.S. Economy. You pay 4 percent of your
ID: 1095241 • Letter: S
Question
Suppose you are a typical person in the U.S. Economy. You pay 4 percent of your income in a state income tax and 15.3 percent of your labor earnings in federal payroll taxes (employer and employee shares combined). You also pay federal income taxes an in table 3. How much tax of each type do you pay if you earn $20,000 a year? Taking all taxes into account, what are your average and marginal tax rate? What happens to your tax bill and to your average and marginal tax rates if your income rises to 40,000? Suppose you are a typical person in the U.S. Economy. You pay 4 percent of your income in a state income tax and 15.3 percent of your labor earnings in federal payroll taxes (employer and employee shares combined). You also pay federal income taxes an in table 3. How much tax of each type do you pay if you earn $20,000 a year? Taking all taxes into account, what are your average and marginal tax rate? What happens to your tax bill and to your average and marginal tax rates if your income rises to 40,000? The federal Income tax rates : 2010 This table shows the marginal tax rates for an unmarried taxpayer. The taxes owned by a taxpayer depend on all the marginal tax rates up to his or her income level. For example, a taxpayer with income of $25,000 pays 10 percent of the first $8,375 of income, and then 15 percent of rest.Explanation / Answer
Suppose a person is earning $ 20,000 a year
He pays 4% state income tax on $ 20,000 = $ 800
15.3 percent in federal payroll taxes = $ 3060
Federal income taxes is 10% upto 8375 = 837.5
and Federal income tax is 15% from 8375 to rest = 1743.75
His average tax will be = $ 1610.31
Marginal tax = $ 906.25
b) If a person income is $ 40,000
He pays 4% state income tax on $ 40,000 = $ 1600
15.3 percent in federal payroll taxes = $ 6120
Federal income taxes is 10% upto 8375 = 837.5
Federal income taxes is 15% from 8375 to 34,000= $ 3843.75
Federal income taxes is 25% from 34,000 =$ 1500
Average tax =$ 2780.25
marginal tax will be 3006.25 for 2nd slab
and marginal tax will be $ 1500 for 3 slab .