Taxes
Effective tax rate
Add every tax actually paid for the period, divide by income before any deduction, and multiply by 100. Specify which taxes you included — the answer changes enormously.
The Formula
Effective Tax Rate = Total Tax / Gross Income
Add every tax actually paid for the period, divide by income before any deduction, and multiply by 100. Specify which taxes you included — the answer changes enormously.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| T | Total tax paid | currency | Federal income tax, state and local income tax, and employee payroll contributions. Exclude sales taxes and property taxes unless stated. |
| I(gross) | Gross income | currency | Income before any tax, deduction or credit. Using take-home pay here inflates the rate sharply. |
| ETR | Effective tax rate | decimal | The blended share of every dollar earned that went to tax. |
What Each Symbol Means
Tcurrency
Total tax paid
Federal income tax, state and local income tax, and employee payroll contributions. Exclude sales taxes and property taxes unless stated.
I(gross)currency
Gross income
Income before any tax, deduction or credit. Using take-home pay here inflates the rate sharply.
ETRdecimal
Effective tax rate
The blended share of every dollar earned that went to tax.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate effective tax rate page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Effective Tax Rate, filed under Finance. Every number the guide produces comes from substituting into this one line.