GLOSSARY · TAX & ESTATE
Effective tax rate
Your total tax divided by your income: the share of everything you earn that goes to tax. Because of the progressive brackets and the standard deduction it is always lower than your marginal rate. It is useful for budgeting and comparing years, but not for judging extra income.
Also called: average tax rate, effective rate
FORMULA
Effective rate = total tax ÷ total income
COMPUTE IT WITH YOUR NUMBERS
LEARN IT PROPERLY
CHAPTER · TAX PLANNING FUNDAMENTALS · FOUNDATIONSHow Tax Brackets Really WorkRELATED TERMS
SOURCES
- Federal income tax rates and brackets. Internal Revenue Service.