What is "effective tax rate"?

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Derek Woods, Financial Advisor

@DerekWoods • 03/22/16 This answer was first published on 03/22/16. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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Great question. The U.S. tax code is progressive or tiered which means that the first tier is taxed at 10%, the next at 15% and so on up to the max of 39.6%. So even if your income amount puts you in a 25% bracket you dont pay 25% on all your money. An easy rule of thumb is to subtract 8% from your top bracket and you will be close to your actual tax obligation.

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