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An explanation of the marginal tax rate and average tax rate

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Another client, Ms. Dunham, has asked you to help her understand how her tax is computed. You need to provide Ms. Dunham with the following:

An example of how to calculate the tax liability using the tax rate table and the tax rate formula for a taxpayer with taxable income of $55,000, filing status married filing jointly.
An explanation of the marginal tax rate and average tax rates for this tax payer.
Be clear in our elaboration s that Ms. Dunham, a person with no business or tax background, can understand.

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Solution Summary

Your tutorial is a three paragraph letter in everyday terms that shows the liability (highlighted on the tax table attached), computes the average tax rate and then shows the incremental tax rate if she earned $50 more.

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Ms. Dunham,

To figure your tax liability for 2010, you look up $55,000 on the tax table (attached). See on page 80 where I have highlight $7,416? That is your tax liability.

Your effective rate or average tax rate would be $7,416 / $55,000 = 13.48%. This is the average rate over the full $55,000. Of ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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