Algernon, Inc., has a taxable income of $85,000. What is its tax bill? What is its average tax rate? Its marginal tax rate?

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Accepted Answer

From Table 2.3, we see that the tax rate applied to the first $50,000 is 15 percent; the rate applied to the next $25,000 is 25 percent, and the rate applied after that up to $100,000 is 34 percent. So Algernon must pay .15×$50,000+.25 × 25,000 + .34× (85,000-75,000)=$17,150. The average tax rate is thus $17,150/85,000=20.18%. The marginal rate is 34 percent because Algernon’s taxes would rise by 34 cents if it had another dollar in taxable income.

Table 2.3
Corporate tax rates

Tax Rate	Taxable Income
15%	$ 0–50,000
25	50,001–75,000
34	75,001–100,000
39	100,001–335,000
34	335,001–10,000,000
35	10,000,001–15,000,000
38	15,000,001–18,333,333
35	18,333,334+

Question 2.4: Algernon, Inc., has a taxable income of $85,000. What is its...

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