Effective Tax Rate
TaxGlossary term
Definition
The average rate at which your total income is taxed, calculated by dividing total tax paid by total taxable income. It is always lower than your marginal tax rate because the US uses a progressive tax system.
Related terms
- Marginal Tax RateThe tax rate applied to your last dollar of income. In the US progressive tax system, different portions of income are taxed at different rates.
- Tax BracketThe range of income subject to a certain income tax rate in the progressive US tax system. Higher income levels are taxed at higher rates (marginal tax rates).
Get advice that uses your real numbers
Warren reads your accounts and explains what terms like this mean for your plan. Free to start, no credit card required.