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Assume that in year 1 your average tax rate is 20 percent on a taxable income of $20,000. If the marginal tax rate on the next $10,000 of taxable income is 30 percent, what will be the average tax rate if your taxable income rises to $30,000?

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Answer:

Average Tax rate if income rises to $30,000 is 23.33%

Explanation:

Tax on First $20,000 = 20%

Tax on Next $10,000 = 10%

Tax on First $20,000 = $20,000 x 20%

Tax on First $20,000 = $4,000

Tax on Next $10,000 = $10,000 x 30%

Tax on Next $10,000 =  $3,000

Total Tax on $30,000 = $4,000 + $3,000

Total Tax on $30,000 = $7,000

Average Tax rate = ( $7,000 / $30,000 ) x 100

Average Tax rate = 23.33%

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