Consumer Reports, she is an expert in credit and debt, retirement planning, trang chủ ownership, employment issues, & insurance. She is a graduate of Bryn Mawr College (A.B., history) và has an MFA in creative nonfiction from Bennington College." data-inline-tooltip="true">Julia Kagan




Ariel Courage is an experienced editor, researcher, và fact-checker. In addition khổng lồ her work with tambour.vn, she has performed editing và fact-checking work for several leading finance publications, including The Motley Fool and Passport khổng lồ Wall Street.Bạn đã xem: Effective tax rate là gì

What Is the Effective Tax Rate?

The effective tax rate is the percent of their income that an individual or a corporation pays in taxes. The effective tax rate for individuals is the average rate at which their earned income, such as wages, và unearned income, such as stock dividends, are taxed. The effective tax rate for a corporation is the average rate at which its pre-tax profits are taxed, while the statutory tax rate is the legal percentage established by law.

Bạn đang xem: Effective tax rate là gì

Effective tax rate represents the percentage of their taxable income that individuals pay in taxes.For corporations, the effective corporate tax rate is the rate they pay on their pre-tax profits.Effective tax rate typically refers only lớn federal income tax, but it can be computed to reflect an individual's or a company's total tax burden.

Understanding the Effective Tax Rate

An individual can calculate their effective tax rate by looking at their 1040 form and dividing the number on line 16, the "Total Tax," by the number on line 11(b), the "Taxable Income." For corporations, the effective tax rate is computed by dividing total tax expenses by the company"s earnings before taxes.

Expressed as formulas, the effective tax rates (ETR) for individuals và corporations look lượt thích this:

The effective tax rate typically refers only khổng lồ federal income taxes and doesn't take into trương mục state và local income taxes, sales taxes, property taxes, or other types of taxes an individual might pay. To determine their overall effective tax rate, individuals can địa chỉ up their total tax burden and divide that by their taxable income. This calculation can be useful when trying khổng lồ compare the effective tax rates of two or more individuals, or what a particular individual might pay in taxes if they lived in a high-tax vs. A low-tax state—a consideration for many people thinking about relocating in retirement.

Investors may use effective tax rate as a profitability indicator for a company, but it can be difficult khổng lồ determine the reason for year-to-year fluctuations in the ETR.

Marginal vs. Effective Tax Rate

In a graduated or progressive income-tax system, like the one in the United States, income is taxed at differing rates that rise as income hits certain thresholds. Two individuals or companies with income in the same upper marginal tax bracket may kết thúc up with very differenteffective tax rates, depending on how much of their income was in the đứng top bracket.

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Example of an Effective Tax Rate

Imagine, for example, a graduated tax system where income under $100,000 is taxed at 10%, income between $100,000 & $300,000 is taxed at 15% và income over $300,000 is taxed at 25%. Now consider two individuals who both hit the upper tax bracket of 25%, although one had a taxable income of $500,000, while the other had a taxable income of $360,000.

Both individuals would pay 10% on their first $100,000 of income, or $10,000. Both would then pay 15% percent on their income between $100,000 và $300,000, or $30,000 (15% of $200,000).

Finally, both would also pay 25% on their earnings over the $300,000 threshold. For the individual with $360,000 in taxable income, that would come lớn $15,000 (25% of $60,000). But for the individual with $500,000 in taxable income, the tax would be $50,000 (25% of $200,000). Their total tax obligations would be $55,000 và $90,000, respectively.

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