Corporate Tax Rate Schedule Range of taxable income Base tax rate + (Marginal rate * amount over...
Question:
Corporate Tax Rate Schedule
| Range of taxable income | Base tax rate | + | (Marginal rate * amount over base braket) |
|---|---|---|---|
| 0 to 50,000 | 0 | + | (15% * amount over $0) |
| 50,000 to 75,000 | 7,500 | + | (25% * amount over $50,000) |
| 75,000 to 100,000 | 13,750 | + | (34% * amount over $75,000) |
| 100,000 to 335,000 | 22,250 | + | (39% * amount over$100,000) |
| 335,000 to 10,000,000 | 113,900 | + | (34% * amount over $335,000) |
| 10,000,000 to 15,000,000 | 3,400,000 | + | (35% * amount over $10,000,000) |
| 15,000,000 to 18,333,333 | 5,150,000 | + | (38% * amount over $15,000,000) |
| 18,333,333 and up | 6,416,667 | + | (35% * amount over $18,333,333) |
a. Find the marginal tax rate for the following level of corporate earnings before tax: (i) $60,000; and (ii) $150,000
b. For each of the above cases, how much would the company's after tax earnings be?
c. For each of the above cases, what is the effective tax rate?
Marginal tax rate
Marginal tax rates are an important concept to understand. As the income increases, the tax rate changes at predetermined intervals.
Answer and Explanation: 1
a.The marginal tax rate at i) $60,000 is 25% because $60,000 is between $50,000 - $75,000. ii)$150,000 is 39% because $150,000 is between $100,000 - $335,000
b. The total tax is the base rate for the interval plus the marginal rate multiplied by net income in that interval.
For $60,000, the total tax = $7,500 + 25% x($60,000 - $50,000) = $10,000. After tax earnings = earnings before tax - total tax = $60,000 - $10,000 = $50,000
For $150,000, the total tax = $22,500 + 39% x($150,000 - $100,000) = $42,000. After tax earnings = earnings before tax - total tax = $150,000 - $42,000 = $108,000
c.The effective tax rate is the total tax amount divided by the net income before tax.
For $60,000, the effective tax rate = $10,000 / $60,000 = 16.67%
For $150,000, the effective tax rate = $42,000 / $150,000 = 28.0%
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What is a Marginal Tax Rate? - Definition & History
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Learn about the history and concept of marginal tax rates in the United States, including how to calculate marginal income tax rates using formulas and examples.
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