Question

What is the marginal tax rate for a corporation with $60,000 of taxable income and an average tax rate of 18% if the next-lowest marginal tax rate of 15% covers taxable incomes up to $40,000?

Answer 1

Taxable Income = $60,000

Average Tax Rate = 18%

Total Tax on Taxable Income = Taxable Income*Average Tax Rate

=$60,000*18%

= $10,800

- Lowest margin rate that covers taxable Income upto $40,000 = 15%

Tax as per lowest margin rate = $40,000*15%

=$6,000

Marginal Tax = Total Tax on Taxable Income - Tax as per lowest margin rate

=$10,800 - $6,000

=$4800

Marginal Income = Taxable Income - Lowest Marginal Txa rate cover

=$60,000 - $40,000

=$20,000

Marginal Tax Rate = Marginal Tax/Marginal Income

=$4800/$20,000

=24%

So, Marginal Tax Ratefor corporation is 24%

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