How to Calculate Average Income Tax Rate

The federal government uses a progressive income tax structure.

In the U.S., the federal government and many states use progressive income tax structures. This means the higher income amounts get taxed at a higher percentage rate. For example, a state may tax the first $10,000 of income at 3 percent and the next $20,000 at 5 percent. So if a person makes $25,000, the first $10,000 is taxed at 3 percent and the next $15,000 is taxed at 5 percent. To calculate the average tax rate, you need to know your total income and total taxes.

Instructions

1. Consult your income tax return to determine the total amount of income taxes you paid. For example, if you want to find your average federal income tax rate, you would look at your federal income tax return to find your total tax paid.

2. Calculate your total income, including income not subject to income taxes, such as interest on municipal bonds.

3. Divide your total tax by your total income to find your average income tax rate. For example, if your income equals $37,000 and your federal income tax equals $7,030, you would divide $7,030 by $37,000 to find that your average federal income tax rate equals 19 percent.

4. Add the average income tax rates for your state and federal income taxes to find your total average income tax rate. For example, if your average federal rate equals 19 percent and your average state income tax rate equals 4 percent, you would add 19 percent and 4 percent to get 23 percent.

References

• Smart Money: What's Your Average Tax Rate?