If an individual's pay increases, what may happen to their income tax rate?

The correct choice highlights a key concept of progressive taxation, which is often utilized in income tax systems. As an individual's pay increases, they may enter a higher tax bracket, which means that a portion of their income will be taxed at a higher rate.

In many tax systems, rates are structured so that as people earn more, they are taxed at higher rates on additional income. For example, if a person’s earnings rise, they may cross the threshold into the next bracket that imposes a greater percentage on earnings exceeding a certain amount. This does not mean that all of their income is taxed at the higher rate; rather, only the income above the threshold is taxed at that higher rate.

Therefore, while the overall effective tax rate (the average rate of tax on total income) may change due to increased earnings, being in a higher tax bracket signifies that their marginal tax rate is higher, which is a fundamental principle of how progressive taxes work. This concept is critical when considering personal finance and understanding how increases in pay can influence tax obligations.