Homework SourseA corporations pretax net income of 1000000 is taxable based
A corporation’s pretax net income of $1,000,000 is taxable based on 10% of the first $300,000, 16% of the next $300,000, and 21% of the balance:
What is the corporation’s average tax rate?
What is the corporation’s marginal tax rate?
Solution
Slab
Income (allocation)
Tax rate
Income*Tax rate
300,000.00
300,000
10%
30,000
300,001-600,000
300,000
16%
48,000
600,001-above
400,000
21%
84,000
Total
1,000,000
162,000
Average tax rate = Total tax / Total Income
Average tax rate = 162000 / 1000000
Average tax rate = 16.20%
.
Marginal tax rate = Higher slab rate = 21.00%
As individual has reached to higher tax slab any additional or marginal income will fall in higher slab rate only.
| Slab | Income (allocation) | Tax rate | Income*Tax rate |
| 300,000.00 | 300,000 | 10% | 30,000 |
| 300,001-600,000 | 300,000 | 16% | 48,000 |
| 600,001-above | 400,000 | 21% | 84,000 |
| Total | 1,000,000 | 162,000 |
