Jack has taxable income of $65,000. He is a single tax filer, and his federal income tax rates on the first $8,350 is 10 percent; it is 15 percent on income from $8,350 to $33,950 and 25 percent on income from $33,950 up to $82,250. What is Jack's federal income tax liability; what is his marginal rate and why would he care? Finally, what is his average federal tax rate?
This solution illustrates how to compute an individual's income tax liability, as well as his marginal and average tax rates. It also discusses why he would want to know his marginal tax rate.