Finance glossary
Effective Tax Rate
Definition
The average rate you actually pay on total income.
The effective tax rate is total tax divided by total income, reflecting the blended rate after progressive brackets, deductions, and credits. It is never higher than the marginal rate and gives a truer picture of overall tax burden than the top bracket alone.
In a sentence
Although her top bracket was 32%, deductions left her with an effective tax rate of just 19%.
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