Vampire Company pays taxes of 15% on their first $20,000 of pretax income, and 30% on any taxable income in excess of $20,000.The average tax rate, if current pretax income is $50,000, is _____.

Question

Quizplus · Accepted Answer

Vampire Company's taxable income is $50,000 - $20,000 = $30,000. They pay 15% on their first $20,000 of taxable income, which is $3,000 ($20,000 x 0.15). They pay 30% on the remaining $30,000 - $20,000 = $10,000, which is $3,000 ($10,000 x 0.30). Therefore, their total tax liability is $6,000 ($3,000 + $3,000). 
Their average tax rate is their total tax liability divided by their total pretax income, which is $6,000/$50,000 = 0.12, or 24% rounded to the nearest whole number. 
Therefore, the correct answer is C, 24%.

Vampire Company Pays Taxes of 15% on Their First $20,000