Effective Tax Rate
Total tax divided by total income, which is always below the top bracket reached.
Total tax divided by total income. Someone paying $18,000 of federal tax on $100,000 has an 18% effective rate while sitting in the 22% or 24% marginal bracket, because the lower brackets taxed most of the income at lower rates.
The two rates answer different questions and are not interchangeable. Effective rate describes what a year cost. Marginal rate is what applies to a change, which makes it the relevant figure for valuing a deduction or a pre-tax contribution.
Most US households land in a low double-digit effective federal rate, with the total rising once state income tax and FICA are included. Promi uses effective rates rather than marginal ones when modelling retirement withdrawals, since applying a marginal rate to an entire withdrawal overstates the tax by a wide margin.
Worked through
Effective Federal Tax Rate
Most: 15–18%
See your own effective tax rate
Promi computes this from your linked accounts, with the definition one click from the number.
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