The table below shows an income tax schedule for the imaginary country of Indepe

Question

The table below shows an income tax schedule for the imaginary country of Independence. Connor is a citizen of Independence who earns $94,000 per year at his job. Assume Connor is not eligible for any deductions or exemptions.

Instructions: Round your answers to one decimal place.

a. Connor pays $ in income tax.

b. Connor’s marginal tax rate is     %

   

    .

    Connor's overall tax rate is    %

   

    .

c. Connor isn’t crazy about his job and wants to move to a job in a related industry that pays $100,000.

    With his new job, Connor will have to pay     in taxes

   

Taxable income Marginal tax
rate (%) $0$5,000 5 $5,001$15,000 7 $15,001$30,000 9 $30,001$50,000 11 $50,001$75,000 13 $75,001$100,000 15 $100,001$130,000 20 $130,001$175,000 21 $175,001+ 22

Explanation / Answer

(a) When income is $94,000,

Tax paid ($) = 5,000 x 5% + (15,000 - 5,001) x 7% + (30,000 - 15,001) x 9% + (50,000 - 30,001) x 11% + (75,000 - 50,001) x 13% + (94,000 - 75,001) x 15%

= 250 + 9,999 x 7% + 14,999 x 9% + 19,999 x 11% + 24,999 x 13% + 18,999 x 15%

= 250 + 699.93 + 1,349.91 + 2,199.89 + 3,249.87 + 2,849.85

= 10,599.5

(b)

Marginal tax rate = 15.0%

(c)

Average tax rate = Tax paid / Income = $10,599.5 / $94,000 = 0.113 = 11.3%

(d) When income = $100,000,

Tax paid ($) = 5,000 x 5% + (15,000 - 5,001) x 7% + (30,000 - 15,001) x 9% + (50,000 - 30,001) x 11% + (75,000 - 50,001) x 13% + (100,000 - 75,001) x 15%

= 250 + 9,999 x 7% + 14,999 x 9% + 19,999 x 11% + 24,999 x 13% + 24,999 x 15%

= 250 + 699.93 + 1,349.91 + 2,199.89 + 3,249.87 + 3,749.85

= 11,499.5

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