What is the Effective Tax Rate?
The effective tax rate is the average percentage of total income you actually pay in tax, computed as total tax divided by gross income. It is always lower than the marginal tax rate because progressive US brackets apply the top rate only to the last dollar earned, while earlier dollars are taxed at lower bracket rates and the standard deduction shelters the first slice entirely.
Detailed definition
The effective tax rate is the simplest number you can use to compare what two filers actually pay. It is the total tax divided by total income, expressed as a percent. The marginal rate (the top bracket your last dollar lands in) is useful for decisions about the next dollar earned. The effective rate is the answer to "what fraction of what I make goes to tax." Both rates matter, but they answer different questions.
The US federal income tax is progressive, meaning each layer of income is taxed at a higher rate than the one below it. For 2026 a single filer pays 10 percent on the first $11,925 of taxable income, 12 percent on the next slice up to $48,475, 22 percent up to $103,350, 24 percent up to $197,300, 32 percent up to $250,525, 35 percent up to $626,350, and 37 percent on anything above. Only the last slice is taxed at the marginal rate. The standard deduction ($15,000 single, $30,000 MFJ for 2026) removes the first chunk of gross income from the calculation entirely.
People mix the two rates up because tax tables only show marginal brackets and "what bracket am I in" is the question most often asked. In practice, the effective rate is closer to 60 to 75 percent of the marginal rate for most middle-income households. When comparing total US tax burden across countries or income deciles, always quote the effective rate, not the bracket.
Formula
Effective tax rate = Total tax paid / Gross income Federal income effective = Form 1040 line 24 / line 9 All-in effective (incl.) = (Federal + State + FICA + Local) / Gross income Marginal vs effective = Effective is the average; marginal is the rate on the next dollar
- Total tax paid = federal income tax. Add payroll (Social Security 6.2 percent and Medicare 1.45 percent), state, and local taxes for the all-in version.
- Gross income = wages, salary, dividends, interest, business income, capital gains, retirement distributions, before any deduction.
- Taxable income = gross income minus above-the-line adjustments minus the larger of standard or itemized deductions. The brackets apply to taxable income, not gross.
- Form 1040 lookup = effective rate equals line 24 divided by line 9 (or line 11 for AGI-based).
Worked example
A single filer in 2026 earns $100,000 in wages, takes the standard deduction, and has no other adjustments.
- Gross income: $100,000.
- Standard deduction: $15,000 (single, 2026).
- Taxable income: $100,000 minus $15,000 equals $85,000.
- Federal tax by bracket:
- 10% on $11,925 equals $1,192.50
- 12% on ($48,475 minus $11,925) equals 12% x $36,550 equals $4,386.00
- 22% on ($85,000 minus $48,475) equals 22% x $36,525 equals $8,035.50
- Total federal income tax equals $13,614.00
- Marginal rate: 22 percent (the bracket the last dollar fell in).
- Effective federal income tax rate: $13,614 / $100,000 equals 13.6 percent.
- FICA payroll: 7.65 percent x $100,000 equals $7,650.
- All-in effective (federal + FICA only): ($13,614 + $7,650) / $100,000 equals 21.3 percent.
Marginal vs effective tax rate compared
The most common tax confusion in the US is between these two rates. Use the table below to keep them straight.
| Feature | Marginal tax rate | Effective tax rate |
|---|---|---|
| Definition | Rate on the next dollar of income | Total tax divided by total income |
| How it is read | From the top of the tax-bracket table | Computed after filing, from your 1040 |
| Use case | Should I take a raise, contribute traditional vs Roth, sell stock now or later | What share of my income did the IRS take |
| Example, $100K single 2026 | 22% (top bracket touched) | ~13.6% (federal only) |
| Example, $500K single 2026 | 35% | ~25 to 27% (federal only) |
| Always equal? | Equal only at the very top bracket (and only on dollars above it) | Always less than or equal to marginal in a progressive system |
| Changes when? | When you cross a bracket threshold | Smoothly with every dollar earned |
Related terms
Related calculators on 3Tej
Compute your own effective and marginal rates from real numbers:
Frequently asked questions
What is the difference between effective and marginal tax rate?
The marginal tax rate is the percentage paid on the next dollar of income, the rate of your top bracket. The effective tax rate is the average percentage paid across all income, total tax divided by gross income. A single filer earning $100,000 in 2026 sits in the 22 percent marginal bracket but has an effective federal income tax rate of roughly 14 to 15 percent after the standard deduction, because earlier dollars were taxed at 10 and 12 percent.
Does the effective tax rate include payroll taxes?
It depends on the definition. The narrow effective federal income tax rate uses only federal income tax. A broader effective tax rate includes FICA (6.2 percent Social Security on the first $176,100 of 2026 wages plus 1.45 percent Medicare), and an all-in effective rate also adds state, local, and the 0.9 percent Additional Medicare Tax above $200,000. Always check which version a source is quoting.
What is a typical effective tax rate for a US household?
The Tax Foundation and IRS Statistics of Income put the average federal income tax effective rate at roughly 13 to 15 percent for the middle quintile of households. The top 1 percent pay roughly 25 percent effective on federal income tax, and the bottom 50 percent pay roughly 3 percent. Adding payroll, state, and local typically lifts a middle-class all-in effective rate to 25 to 30 percent.
Can I lower my effective tax rate?
Yes, primarily by lowering taxable income. Pre-tax 401(k) contributions (up to $24,500 in 2026 under 50, $32,500 catch-up at 50+), HSA contributions ($4,400 self only / $8,750 family for 2026), traditional IRA contributions, itemized deductions, and Section 199A QBI deductions all shrink taxable income. Tax credits (Child Tax Credit, EV credit, Saver's Credit) reduce tax dollar for dollar and lower the effective rate more aggressively than deductions.
Why is my effective tax rate so much lower than my bracket?
Three reasons. First, the US system is progressive: only the last slice of income is taxed at the top bracket. Second, the standard deduction shelters the first $15,000 single or $30,000 MFJ in 2026 entirely from federal income tax. Third, long-term capital gains and qualified dividends are taxed at lower 0, 15, or 20 percent rates, pulling the average down for investors with significant portfolio income.
Is the effective tax rate the same as the average tax rate?
In US personal finance contexts the two terms are interchangeable: both mean total tax divided by total income. Some economists distinguish 'average tax rate on AGI' versus 'average tax rate on gross income,' but for an individual filer reading a Form 1040, line 24 (total tax) divided by line 9 (total income or AGI) gives the effective rate.
Sources and further reading
- IRS Rev. Proc. 2025-32 (October 2025), the 2026 inflation adjustments containing the official ordinary income brackets and standard deduction figures.
- IRS (2024) About Form 1040, the source document for the line numbers used to compute personal effective tax rate.
- Tax Foundation (2025) Summary of the Latest Federal Income Tax Data, average effective rates by income decile.
- Congressional Budget Office (2024) The Distribution of Household Income, federal effective tax rates by income quintile including payroll and corporate incidence.
- IRS Statistics of Income (2024) Individual Income Tax Rates and Tax Shares, multi-year tables of average and marginal rates.