How to Calculate Effective Income Tax Rates

Different amounts of income are taxed at different rates.

The United States federal government uses a progressive tax system, which means that the tax rate increases as you earn more money. However, the higher tax rates are only applied to income above a certain level. For example, if you fall in the 33 percent tax bracket, your effective income tax rate measures your tax rate as a percentage of your total income.

Instructions

1. Calculate your total income for the year before taxes. Be sure to include all of your income, including tax-free interest or other tax-advantaged income.

2. Consult your tax returns to determine the amount of income tax paid.

3. Divide the amount of tax paid by the amount of income you have to calculate your effective income tax rate, expressed as a decimal. For example, if you have $100,000 in income and paid $20,000 in taxes, you would divide $20,000 by $100,000 to find your effective income tax rate expressed as a decimal to be 0.20.

4. Multiply your effective tax rate expressed as a decimal by 100 to convert it to a percentage. In this example, you would multiply 100 by 0.20 to find the effective tax rate to be 20 percent.

References

• Smart Money: What's Your Average Tax Rate?
• Purple Math: Converting Between Decimals, Fractions and Percents