Question

Average and Marginal Taxes Downtown Deals had taxable income of $267,000 last year. Using the following tax schedule, calculate both the firm’s average and marginal tax rate:

Taxable Income Tax Rate

$0 - $50,000 15%

$50,000 – $75,000 25%

$75,000 - $100,000 30%

$100,000 - $335,000 32%

>$335,000 34%

Answer 1

Taxable income (in $)

267,000.00

Tax slabs ( in $)	Tax rate	Tax slab upper limit (in $)	Marginal income to be taxed under the slab (in $)	Income taxed under respective slabs (in $)	Cumulative Income taxed (in $)	Tax (Income on respective slabs x Tax rate) (in $)
0 - 50,000	15.00%	50,000.00	50,000.00	50,000.00	50,000.00	7,500.00
50,000 - 75,000	25.00%	75,000.00	25,000.00	25,000.00	75,000.00	6,250.00
75,000 - 100,000	30.00%	100,000.00	25,000.00	25,000.00	100,000.00	7,500.00
100.000 - 335,000	32.00%	335,000.00	235,000.00	167,000.00	267,000.00	53,440.00
>335,000	34.00%			-	267,000.00	-
Total Tax	74,690.00
Taxable Income	267,000.00
Average tax rate (Total Tax / Taxable Income)	27.97%

Marginal tax rate is the tax rate applicable on every additional $ earned. In this case marginal tax rate is 32% where Marginal income that can be taxed under the slab is $ 235,000 whereas taxable income under the slab is $167,000