What is the discount rate for prepayment?

• A. 4%
• B. 6%
• C. 8%
• D. 10%

Answer: (B)

A prepayment discount is the reduction on the amount due when you pay your tax bill before the due date. Tax authorities set this rate to encourage early payment and to improve cash flow. In this item, the prepayment discount is six percent. That means any tax bill paid within the early payment window is reduced by 6% before applying penalties or other charges. For example, a $1,000 bill paid early would cost $940. The other percentages would change the savings, but six percent matches the policy described in this scenario.