Calculate an effective income tax rate
Your effective
income tax rate is the percentage of your total taxable income that
you pay in income tax. Your effective rate is lower than your
marginal rate, which is the highest percentage rate at which any of
your income is taxed.
- Find the following information from your most recent tax
returns:
- Your taxable income after adjustments and deductions.
- Your total income tax paid (including federal, state, and local
income taxes), after credits but before payments or
withholding.
- Divide your total local, state, and federal income tax by your
taxable income. The result is your effective tax rate
(The percentage of your total taxable income that you
pay in income tax. Your effective rate is is less than the rate in
your tax bracket, or your marginal rate. ) .
For example, suppose you have taxable income of $50,000, federal
income tax of $7,000, state income tax of $500, and no local income
tax. $7,500 ($7,000 plus $500) divided by $50,000 equals 0.15, or
15%.
