Assume that there is a very simple progressive income tax in the country. The ma
ID: 2714694 • Letter: A
Question
Assume that there is a very simple progressive income tax in the country. The marginal tax rate is 10% for income over $5000 to $10,000. It is 20% for income over $10,000 to $25,000, and it is 30% for income over $25,000.
a) How much tax will Jerry pay if his income is $7000? How much will Bob pay, who has an income of $18,000? How much will Greg pay with an income of $40,000?
b) How would your answer in part a) change if there is a $3000 standard deduction?
c) How would your answer in part a) change if there is a $1000 refundable tax credit?
Explanation / Answer
Ans-
a) Jerry total income $7000
Between $5000 to $10,000
Tax to be pay(7000*10%)$700
Bob total income $18000
Between $10,000 to $25,000
Tax to be pay (18000*20%)$3600
Greg total income $40000
Income over $25000
Tax to be pay (40000*30%)$12000
b)if there is $3000 standand deduction
Gery taxable income (7000-3000)$4000
Tax to be pay(4000*10%)$400
Bob taxable income (18000-3000)$15000
Tax to be pay(15000*20%)$3000
Greg taxable income (40000-3000)$37000
Tax to be pay(37000*30%)$11100
c)If there is $1000 refundable tax credit
Jerry total income $7000
Tax to be pay @10% (700-1000) Nil
Bob total income $18000
Tax to be pay @20%(3600-1000)$2600
Greg total income $40000
Tax to be pay @30%(12000-1000)$11000