Given the tax rates as shown, what is the average tax rate for a firm with taxable income of $218,700? taxable income tax rate (%) $0 – 50,000 15 50,001 –75,000 25 75,001 –100,000 34 100,001 –335,000 39 a. 33.88% b. 34.64% c. 31.34% d. 32.09%

Let us calculate the total tax this firm has to pay. For the first 50000$, it has to pay 15% of it in taxes. Thus: 50000*15%=7.500$ in taxes. For the next 25000$ (from 50k to 75k) we have a tax rate of 25%. Hence, the tax on this sum is 25000*25%=6.250$ . For the next 25000$ (from 75k to 100k), the company has to pay 34% of this income in taxes. Hence the tax for this sum is: 25000*34%=8500$. Finally, for the rest of its income, which is 118.700$ (its income above 100k), it has to pay taxes at a rate of 39%. Hence, the tax is 118.700*39%=46293$. We have then that the total tax that the firm pays is the sum of the quantities we calculated. 7500$+6250$+8500$+46293$=68543$. To calculate the average tax rate of the company, we have to divide the total tax of the firm by the total income (68.543/218700); this yields 0,3134 or 31,34%.

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