A corporation’s pretax net income of $1,000,000 is taxable based on 10% of the first $300,000,...

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?

Expert Solution

Slab	Income (allocation)	Tax rate	*IncomeTax 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.

jeff jeffy answered 3 years ago

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