3 Given the tax rates as shown what is the average tax rate

3. Given the tax rates as shown, what is the average tax rate and marginal tax rate for a firm with taxable income of $218,700? Tax Rate Taxable Income $0- 50,000 50,001-75,000 75,001-100,000 100,001-335,000 15 25 34 39

Solution

Taxable Income= $218700

Total tax= 50000*15% + (75000-50000)*25% + (100000-75000)*34% + (218700-100000)*39%

=68543

Average tax rate = Total tax/ Taxable Income

= 68543/ 218700

=31.34%

Marginal tax = Highest tax rate applicable = 39%