# MicroEconomics

You are a typical person in the US economy. You pay 4 percent of your income in a state income tax and 15.3 percent of your labor earnings in federal payroll taxes (employer and employees share combined) You also pay federal income taxes 15%. How much tax of each type do you pay if you earn 20,000 a year? Taking all taxes into accoount what are your average and marginal tax rates? What happens to you tax bi.ll and to your average and marginal tax rates if your income rises to 40,000 (federal tax raises to 27.5%)

This is an area I have a lot of expertise.

Federal tax liability for a "typical" person can vary by huge amounts, depending on what you mean by typical. If "typical" means a non-dependent, non-elderly, no-children single person with less than \$5000 in deductable expenses, THEN that person's federal income tax liability in 2005 would be \$1405. In 2005, the person gets a \$5000 standard deduction and a \$3200 personal exemption, leaving a taxable income of 11800; which is applied against a graduated rate structure. The first 7300 of taxable income is taxed at a 10% rate.

If your typical person has a child, then the 20,000 income, (assuming its all wage income) will generate a \$1759 earned income tax credit, making your typical person's liability a negative number.

If your typical person is married and files a joint return, then the above calculated liability drops by \$1045 to \$360. The couple would still get the 1759 EITC if it has a child.

If some of the income is in the form of dividends or capital gains, the federal tax will drop even further.

If your typical person is over 64 years old, the federal tax will drop even further.

So, what exactly do you mean by "typical"

By the way, the federal marginal rate for a single with 40000 taxable income is 25% not 27.5% The 25% bracket starts at \$29700 in 2005.

The payroll tax (FDIC) will by 15.3% of the amount of earnings (up to a cap of \$90000 in 2005).

For income tax rate schedules and rules, etc., go to irs dot gov

1. 👍 1
2. 👎 0
3. 👁 432

## Similar Questions

1. ### ECONOMICS

Suppose you are a typical person in the U.S. economy. You pay 4 percent of your income in state income tax and 15.3 percent of your labor earnings in federal payroll taxes (employer and employee shares combined). You also pay

asked by Anonymous on April 22, 2010
2. ### english

what means typical and typical person? http://www.onelook.com/?w=*&loc=revfp2&clue=typical+person Typical person is an artificial concept of a person who has the average qualities of people as a whole. However, nobody is a typical

asked by neeta on December 8, 2006
3. ### Economics

Some people would prefer a single income tax rate because it? A) would increase the government’s revenue. B) is easier to calculate. C) would reduce the percent of income poorer families pay in income taxes. D)means everyone

asked by Bailey on May 22, 2014
4. ### Math

in a recent year, a single person could expect to pay \$4550 in income taxes on an adjusted gross income of \$35,000. how much more tax should the person expect to pay if her adjusted gross income increased by \$4000, knowing that

asked by Makaila on July 24, 2015
5. ### Algebra

In a recent year, a single person could expect to pay \$4200 in income taxes on an adjusted gross income of \$30,000. How much more tax should the person expect to pay if her adjusted gross income increased by \$3000, knowing that

asked by Randy on September 5, 2016
6. ### math

In a recent, a single person could expect to pay \$3400 in income taxes on an adjusted gross income of \$34000. How much more tax should the person expect to pay if her adjusted gross income increased by \$4000, knowing that this

asked by mike on January 9, 2017
7. ### algebra

in a recent year a single person could expect to pay 4160 in income taxes on an adjusted gross income of 26,000. how much more tax should the person expect to pay if her adjusted gross income increased by 4,000 knowing that this

asked by Ann on May 15, 2015
8. ### social studies

what is the most likely effect on a person's income if he or she has little education and few skills? A. the person's income will vary greatly. B. the person's will earn a high income. C. the person's income will decline over

asked by megan on May 4, 2016
9. ### Math 134

A single person could expect to pay \$4,760 in income taxes on an adjusted gross income of \$34,000 how much more tax should the person expect to pay if her adjusted gross income increased by \$2,000, knowing that this owuld not move

asked by In need of help on March 16, 2014
10. ### Career prep

What might happen if a newly hired person filled out a w-4 form incorrectly a.That person could be placed in a job thats not suitable b.That person may have a larger tax bill to pay on income taxes c.That person might be arrested

asked by Honors Courses ONLY Mel❤nie on September 28, 2019

More Similar Questions