How to calculate your effective tax rate
Divide the tax you paid by the income you want to measure it against. The answer depends on both choices, so say which you used. For the tax, you can count federal income tax alone, or add state and local income tax and payroll tax for an all-in rate. For the income, gross income shows the bite out of everything you earned; adjusted gross income leaves out adjustments such as deductible IRA contributions; taxable income gives the highest percentage, because deductions are already gone.
Your return has the pieces. On the 2025 Form 1040, line 9 is total income, line 11a is adjusted gross income, line 15 is taxable income and line 24 is total tax. Line 24 includes other taxes from Schedule 2, such as self-employment tax, so for income tax alone use line 22. State income tax comes from your state return, and the Social Security and Medicare tax withheld from your pay is on your Form W-2.
Whichever measure you pick matters less than using the same one every time you compare years or households.
Why your effective rate is lower than your bracket
Your effective rate averages every dollar you earn; your top bracket taxes only the last ones. Every filer’s first dollars are sheltered by a deduction and the next are taxed at 10% and 12%, whatever their top rate, so the average trails the bracket at every income level.
The table below shows how slowly the effective rate climbs. A single filer with $250,000 of wages is in the 32% bracket but pays 20.5% of pay in federal income tax. Even at $1 million of wages, the effective rate is 32.0%, five points under the 37% top rate.
That gap decides which number to use. The effective rate is right for budgeting, for comparing one year with another, and for seeing how much of a lifetime’s income goes to tax. It is the wrong number for judging a deduction, a bonus or a Roth conversion, which are priced at your marginal tax rate, the cost of the next dollar.
What pushes your effective rate up or down
Anything that removes income from the tax base, taxes it at a lower rate or subtracts from the tax itself lowers the effective rate, and every extra layer of tax raises it. That is why two households with the same income can have very different rates. A married couple with two children, steady pre-tax savings and much of their income in long-term gains can pay a far smaller share than a single saver who earns the same amount entirely in wages.
- Deductions: the 2026 standard deduction of $16,100 single or $32,200 joint shelters the first dollars at 0%.
- Pre-tax savings: 401(k), 403(b) and payroll HSA contributions lower taxable wages.
- Credits: a tax credit such as the $2,200 Child Tax Credit cuts the tax itself, dollar for dollar.
- Favored income: long-term gains and qualified dividends at 0%, 15% or 20%, and tax-free income such as qualified Roth withdrawals.
- Extra layers: payroll tax, self-employment tax, the 3.8% net investment income tax, the alternative minimum tax and state tax all raise an all-in rate.
Effective tax rates in retirement
Many retirees see their effective rate fall. Payroll tax stops with the paycheck, only part of Social Security is taxable, filers 65 and older get a larger standard deduction, and qualified Roth IRA withdrawals are tax-free. A household that paid a fifth of its income in total tax while working may pay a single-digit share in early retirement.
That rate is not fixed. Required minimum distributions start at 73 (75 for people born in 1960 or later) and grow as a share of the balance with age, and a surviving spouse usually moves to single brackets after the year of death on similar income, part of the widow’s penalty. A lifetime view, adding up tax across all years and dividing by all income, shows whether moving income between years lowers the total, which no single year’s rate can show.
Illustrative numbers
A single filer earning $100,000 in wages in 2026
- Total tax
- Federal income tax alone, or an all-in figure that adds state, local and payroll tax
- Income
- Gross income, adjusted gross income or taxable income; the choice changes the answer
State which tax and which income you used, and keep both the same when comparing years.
Salary$100,000
2026 standard deduction−$16,100
Taxable income$83,900
Federal income tax ($5,800 + 22% of $33,500)$13,170
Effective rate on salary / on taxable income13.2% / 15.7%
Employee payroll tax at 7.65%$7,650
Federal income and payroll tax as a share of pay20.8%
The worker’s top rate is 22%, yet federal income tax takes 13.2% of pay. Adding FICA payroll tax lifts the all-in federal share to 20.8%, and a state income tax would raise it further.
At a glance
2026 federal income tax on wages alone: single filer, standard deduction, no credits
| Wages | Taxable income | Federal income tax | Effective rate | Marginal rate |
|---|---|---|---|---|
| $30,000 | $13,900 | $1,420 | 4.7% | 12% |
| $50,000 | $33,900 | $3,820 | 7.6% | 12% |
| $75,000 | $58,900 | $7,670 | 10.2% | 22% |
| $100,000 | $83,900 | $13,170 | 13.2% | 22% |
| $150,000 | $133,900 | $24,734 | 16.5% | 24% |
| $250,000 | $233,900 | $51,304 | 20.5% | 32% |
| $500,000 | $483,900 | $138,134 | 27.6% | 35% |
| $1,000,000 | $983,900 | $320,000 | 32.0% | 37% |
Put it in your plan
Effective Rate in MoneyWhatIf
On MoneyWhatIf’s Taxes page, a line over the annual tax bars shows each year’s effective rate: recurring taxes as a share of that year’s income, where income counts cash income plus the taxable part of withdrawals, Roth conversions, interest and dividends. Capital gains tax on a property sale appears in the bar but stays out of the rate, and a year with nothing coming in has no rate. The Financial wellness scorecard adds cards for this year’s and the lifetime effective tax rate, and property tax is left out of both.
Common questions
Effective Rate FAQs
What is a good effective tax rate?
There is no target to hit. Your effective rate mostly reflects how much you earn, your filing status and where the income comes from, so a higher rate usually just means a higher income. As a reference, a single filer with only wages in 2026 pays about 4.7% of pay in federal income tax at $30,000 and 20.5% at $250,000. More useful comparisons are with your own past years and with the same household under a different plan, such as with and without a Roth conversion.
Does the effective tax rate include state and payroll taxes?
Only if you include them; there is no single official definition for individuals. Total tax on Form 1040 covers federal income tax plus items such as self-employment tax and the net investment income tax, but not the regular Social Security and Medicare tax withheld from wages or any state income tax. For a household budget, an all-in rate that adds those is usually more useful.
Is a lower effective tax rate always better?
Not for a single year. A year with an unusually low rate, such as the gap between retiring and claiming Social Security, can be the cheapest time to realize income through a Roth conversion or gain harvesting. That raises the year’s rate but can lower lifetime tax. For a plan, what matters is total tax across all years compared with lifetime income, not one year’s figure.
What is a corporate effective tax rate?
It is the same idea applied to a company: income tax expense divided by pre-tax income, usually taken from the financial statements. The federal statutory corporate rate is a flat 21% of taxable income, but a company’s effective rate can be higher or lower because of state taxes, foreign tax rates, credits and differences between book income and taxable income.