Effective Tax Rate Calculator
Discover your true tax burden. This calculator helps you understand the difference between your marginal tax bracket and the actual percentage of income you pay to the IRS.
Income Details
Effective vs. Marginal Tax Rate
It's common to confuse your effective tax rate with your marginal tax rate, but they are very different concepts:
- Marginal Tax Rate: This is the tax rate applied to the last dollar you earned. It's determined by the tax bracket you fall into based on your taxable income.
- Effective Tax Rate: This is the average rate you pay on your total income. It's calculated by dividing your total tax liability by your total gross income.
Because the US uses a progressive tax system, your effective tax rate is typically lower than your marginal tax rate. You only pay the higher rates on the portion of your income that falls into those higher brackets.
How It Is Calculated
To calculate your effective tax rate, you first need to determine your total tax liability. This includes:
- Federal Income Tax (calculated using progressive brackets)
- FICA Taxes (Social Security and Medicare)
- State and Local Taxes (if applicable)
The formula is simple:
Frequently Asked Questions
Why is my effective rate lower than my bracket?
This is due to the progressive nature of the tax code. Your first portion of income is taxed at 10%, the next at 12%, and so on. Even if you are in the 24% bracket, only the income above the threshold for that bracket is taxed at 24%. All income below that threshold is taxed at the lower rates.
Does this include state taxes?
This calculator primarily focuses on Federal Income Tax and FICA taxes (Social Security and Medicare) to give you a baseline effective rate. State taxes vary significantly by location and would increase your total effective tax rate.
How can I lower my effective tax rate?
You can lower your effective tax rate by taking advantage of deductions and credits. Contributing to a 401(k) or traditional IRA reduces your taxable income, potentially lowering the amount of tax you owe and your overall effective rate.