Income Tax Brackets

A raise never leaves you worse off.

12 problems · about 22 minutes · TEKS M.M.6.B

What this lesson teaches

The student computes income tax using a bracket system and distinguishes marginal from effective rates.

Income tax is progressive: each slice of income has its own rate.
The marginal rate applies to the next dollar; the effective rate is the average.
A raise always increases take-home pay.

Straightforward practice. Get the method working first.

5 problems

Tax $3000 on income $30000. Effective rate in percent?
Answer 10
Why 10%.
What happens when you move into a higher tax bracket?
Answer Only the income above the threshold is taxed at the higher rate.
Why Only the slice above the threshold.
20% on $20000 of income. Tax in dollars?
Answer 4000
Why 0.20 × 20000.
Bands of $1000 and $4000 tax. Total tax in dollars?
Answer 5000
Why Add them.
Tax $4000 on income $40000. Effective rate in percent?
Answer 10
Why 4000 ÷ 40000.

The same ideas with more to keep track of.

3 problems

Income $25000 with 10% on the first 10000 and 20% above. Total tax in dollars?
Answer 4000
Why 1000 + 3000.
Can a raise reduce your take-home pay? 1 yes, 0 no.
Answer 0
Why Only the extra dollars are taxed higher.
Which is worth more per dollar? 1 a deduction, 2 a credit.
Answer 2
Why One reduces the tax itself.

Mixed problems. Work out what kind of question it is before you start.

4 problems

Match each term with its meaning.
Answer Marginal rate → The rate on your next dollar earned; Effective rate → Total tax divided by total income; Credit → A reduction of the tax itself
Why One of these is always lower than another.
Tax $9000 on income $60000. Effective rate in percent?
Answer 15
Why 9000 ÷ 60000.
The First Band: 10% on the first $10000. Tax on that band, in dollars?
Answer 1000 dollars
Why $1000.
The Effective Rate: Tax $5000 on income $30000. Effective rate in percent, to one decimal place?
Answer 16.7 %
Why About 16.7%.