Eccentricity, Inc. had $300,000 in 2013 taxable income. Using the tax schedule from Table 2-3, what are the company's 2013 income taxes, average tax rate, and marginal tax rate, respectively? $$\begin{array} { l c c }
\text { Taxable income } & \begin{array} { l }
\text { Pay this amount on } \
\text { Base income }
\end{array} & \begin{array} { c }
\text { Plus this percentage on } \
\text { anything over the base }
\end{array} \
\$ 0 - \$ 50,000 & \$ 0 & 15 \% \
\$ 50,001 - \$ 75,000 & \$ 7,500 & 25 \% \
\$ 75,001 - \$ 100,000 & \$ 13,500 & 34 \% \
\$ 100,001 - \$ 335,000 & \$ 22,250 & 39 \% \
\$ 335,000 - \$ 10,000,000 & \$ 113,900 & 34 \%
\end{array}$$

Question

Eccentricity, Inc. had $300,000 in 2013 taxable income. Using the tax schedule from Table 2-3, what are the company's 2013 income taxes, average tax rate, and marginal tax rate, respectively? $$\begin{array} { l c c } 
\text { Taxable income } & \begin{array} { l } 
\text { Pay this amount on } \
\text { Base income }
\end{array} & \begin{array} { c } 
\text { Plus this percentage on } \
\text { anything over the base }
\end{array} \
\$ 0 - \$ 50,000 & \$ 0 & 15 \% \
\$ 50,001 - \$ 75,000 & \$ 7,500 & 25 \% \
\$ 75,001 - \$ 100,000 & \$ 13,500 & 34 \% \
\$ 100,001 - \$ 335,000 & \$ 22,250 & 39 \% \
\$ 335,000 - \$ 10,000,000 & \$ 113,900 & 34 \%
\end{array}$$

Quizplus · Accepted Answer

First, we need to find which tax bracket Eccentricity, Inc. falls into. Since the taxable income of $300,000 is in the fourth tax bracket, the company will pay:

- Base amount: $22,250
- Additional amount: 39% on anything over $100,000

Amount over base amount: $300,000 - $100,000 = $200,000
Additional tax amount: 0.39 x $200,000 = $78,000
Total tax amount: $22,250 + $78,000 = $100,250

The average tax rate is calculated as total taxes paid divided by taxable income:

Average tax rate = $100,250 / $300,000 = 33.42%

The marginal tax rate is the tax rate on the last dollar of income earned, which is 39% for Eccentricity, Inc. in this case.

Eccentricity, Inc A)$22,250, 7