Taxable Income Tax Rate $ 0 - 50,000 15% 50,001 - 75,000 25% 75,001 - 100,000 34
ID: 1170081 • Letter: T
Question
Taxable Income Tax Rate
$ 0 - 50,000 15%
50,001 - 75,000 25%
75,001 - 100,000 34%
100,001 - 335,000 39%
How much tax will this company pay based on the information above.
What is the average tax rate paid by the the taxpayer?
What is the "Marginal Tax Rate" for this taxpayer at this level of income?
At this marginal tax rate, how much additional tax will this taxpayer pay on an additional $10,000 of taxable income?
Use the following tax rates to answer questions 12-15 Also, assume the business has taxable income of $150,000.Taxable Income Tax Rate
$ 0 - 50,000 15%
50,001 - 75,000 25%
75,001 - 100,000 34%
100,001 - 335,000 39%
Explanation / Answer
The average tax rate is the total amount of tax divided by total income.
A marginal tax rate is the tax rate incurred on each additional dollar of income. The marginal tax rate for an individual will increase as income rises.
Now, the company in question has a taxable income of $150,000.
Now, according to the slabs, different levels of income would be taxed at different rates:
$50,000 will be taxed at 15%. Hence tax = $7,500. Remaining income = $150,000 - $50,000 = $100,000
$25,000 will be taxed at 25%. Hence tax = $6,250. Remaining income = $100,000 - $25,000 = $75,000
$25,000 will be taxed at 34%. Hence tax = $8,500. Remaining income = $75,000 - $25,000 = $50,000
$50,000 will be taxed at 39%. Hence tax = $19,500
Hence, total tax payable = $7,500 + $6,250 + $8,500 + $19,500 = $41,750
Average Tax rate = Total tax payable/Total income
Average tax rate = $41,750/$150,000 = 27.83%
Marginal tax rate = 39% ( the last tax bracket)
Additional tax on additional $10,000 = 39% * $10,000 = $3900
{Average tax rate would then become = 30.43%}
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