Your effective tax rate is the actual percentage of your income that goes to taxes. It's different from your marginal tax rate (the rate on your last dollar earned). Your effective rate accounts for the fact that tax brackets are progressive — you pay higher rates on higher portions of income. Understanding your effective rate helps you assess your true tax burden and plan accordingly.

The Formula

Effective Tax Rate = Total Taxes Paid / Gross Income

For federal income tax in the US:

Effective Tax Rate = (Federal Income Tax + FICA Taxes) / Gross Income

FICA taxes (Social Security and Medicare) are typically 7.65% for employees.

Worked Example

A single filer earning $75,000 in 2026 (approximate US federal tax):

Federal income tax (after standard deduction of ~$14,600):

  • Taxable income: $75,000 - $14,600 = $60,400
  • Tax brackets (single 2026):
    • 10% on first $11,600 = $1,160
    • 12% on next $47,150 = $5,658
    • Total federal tax: $6,818

FICA taxes:

  • Social Security: $75,000 × 6.2% = $4,650
  • Medicare: $75,000 × 1.45% = $1,088
  • Total FICA: $5,738

Total taxes: $6,818 + $5,738 = $12,556 Effective rate: $12,556 / $75,000 = 16.7%

Marginal vs Effective Rate

Your marginal rate (12% in the example) is what you pay on the next dollar earned. Your effective rate (16.7%) is your average rate on all income. This distinction matters when calculating how much additional income or deductions are worth.

Federal, State, and Local Taxes

Remember to include state and local income taxes, sales taxes, and property taxes for your total tax burden. A $75,000 earner in New York might have:

  • Federal: 16.7%
  • State: ~5%
  • Local: varies
  • Total effective rate: 22%+

Tips

Your effective tax rate changes as your income changes (due to bracket creep) and when you take deductions. Contributing to a 401(k) or IRA reduces taxable income, lowering your effective rate. Tax-advantaged accounts like HSAs and 529 plans also help minimize your rate.

Use our Effective Tax Rate Calculator to compute your federal and combined tax rate based on income and deductions.