## How to find average tax rate from marginal tax rate

To find your effective tax rate, add up the amounts of the varying tax rates to find a single sum. Divide that number by income to find your average tax rate. Marginal Tax Rate: An easy way to think of marginal tax rate is to define it as the rate you would pay on a fictional additional dollar of income. As you make more money, you keep less of each dollar. So, if you earn \$50,000, your average federal tax rate is 15.5% (\$7,759 divided by \$50,000) and your marginal tax rate is 20.5%. If you earned one additional dollar, the federal government would take 20.5 cents of that dollar.

## “Effective” is a tax way of saying “average,” and it’s usually considerably less than your marginal tax rate, which is hinged to your tax bracket. Your effective tax rate works out to the percentage of your overall taxable income that you actually pay in taxes.

8 Jan 2019 But once you get to the tippy-tops — on your 10 millionth dollar — sometimes you see tax rates as high as 60 or 70 percent. That doesn't mean  30 Jan 2013 What is the difference between a marginal and effective tax rate, how at his/her tax bracket… so be certainly to calculate the marginal tax rate correctly, too! in determining an 'average' tax rate to apply during retirement. A marginal tax rate is the rate of tax you pay in a given income tax bracket, most commonly your highest bracket. An average tax rate is just that, the average rate paid on all taxable earnings. In those cases, we can distinguish between two different notions of the tax rate: the average and the marginal rate. The average tax rate is defined as total taxes paid divided by total income. By contrast, the marginal tax rate is defined as the extra taxes paid on an additional unit of income. To calculate the marginal tax rate on the investment, you'll need to figure out the additional tax on the new income. In this example, \$500 will be taxed at 15% and \$500 at 25%. This produces tax of \$200, which on income of \$1,000 makes the marginal tax from making that investment equal to \$200 / \$1,000 or 20%.