Question

MC algo 2-4 Average Tax Rate The tax rates for a particular year are shown below: Taxable Income $0 - 50,000 50,001 - 75,000 75,001 - 100,000 100,001 - 335,000 Tax Rate 15% 25% 34% 39% What is the average tax rate for a firm with taxable income of $131,513? Multiple Choice 20.00% 37.16% 26.26%

Answer 1

Tax is charged at different tax rates as per the income tax slabs.This is to justify the fact that people with lower income should be charged lesser tax.

Income	Tax rate	Tax
$50,000	15%	$7,500	[$50,000*15%]
$25,000 [50,000-75,000]	25%	$6,250	[$25,000*25%]
$25,000[$100,000-$75,000]	34%	$8,500	[$25,000*34%]
$31,513[$131,513-$100,000]	39%	$12,290	[$31,513*39%]
Tax		$34,540	[7,500+6,250+8,500+12,290]

Average tax rate = Tax/total income

=$34,540/$131,513

=26.26%

Answer D 26.26%