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Suppose you are offered a $5,000 raise at work. Your marginal income tax rate is 28%. Your...

Question:

Suppose you are offered a $5,000 raise at work. Your marginal income tax rate is 28%. Your average tax rate is 20%. The additional income tax you owe to the federal government (assuming you stay in the same rate bracket) if you accept the job will be:

A. $1,250.

B. $1,000.

C. $1,400.

D. $250.

E. $150.

Marginal Income Tax:

Marginal income tax is the tax assessed on the incremental portion of your income. Since the income tax is progressive, the marginal income tax rate increases with the amount of taxable income. Therefore, the higher the income, the more tax you have to pay for every extra dollar you earned.

Answer and Explanation:

The answer C.

Since the $5,000 raise represents an increment in your income, therefore the appropriate tax rate is the marginal tax rate. The average...

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