If a company pays taxes of 15 percent on their first $25,000 of pretax income, and 30 percent on any taxable income in excess of $25,000, what is the average tax rate if current pretax income is $40,000?

Question

Quizplus · Accepted Answer

To calculate the average tax rate, we need to find the total tax paid (i.e., the sum of taxes paid on the first $25,000 and the taxes paid on the remaining $15,000) and divide it by the total pretax income:

Total tax paid = (15% of $25,000) + (30% of $15,000) = $3,750 + $4,500 = $8,250
Total pretax income = $40,000

Average tax rate = (Total tax paid / Total pretax income) x 100%
= ($8,250 / $40,000) x 100%
= 20.63%

Therefore, the answer is (B) 20.63 percent.

If a Company Pays Taxes of 15 Percent on Their