The U.S. tax system has some features that are quite difficult for a person encountering tax payment calculations for the first time to understand. Nevertheless, the topic of taxes is relevant and always raises many questions.
What is the effective tax rate, and how does it differ from other taxes like the marginal rate? We’ll examine this further in the article.
If we’re talking about explaining the concept simply, the effective tax rate is the average percentage of your income that you actually pay to the IRS after all tax brackets are applied.
Federal Tax Rates for Tax Year 2025
To understand your effective rate, you first need to look at the marginal tax brackets. The U.S. system is progressive, meaning you don’t pay one flat rate on all your income.
Marginal tax rates for tax year 2025 by filer status:
| Tax Rate | Single | Head of Household | Married Filing Jointly | Married Filing Separately |
| 10% | $0 to $11,925 | $0 to $17,000 | $0 to $23,850 | $0 to $11,925 |
| 12% | $11,926 to $48,475 | $17,001 to $64,850 | $23,851 to $96,950 | $11,926 to $48,475 |
| 22% | $48,476 to $103,350 | $64,851 to $103,350 | $96,951 to $206,700 | $48,476 to $103,350 |
| 24% | $103,351 to $197,300 | $103,351 to $197,300 | $206,701 to $394,600 | $103,351 to $197,300 |
| 32% | $197,301 to $250,525 | $197,301 to $250,500 | $394,601 to $501,050 | $197,301 to $250,525 |
| 35% | $250,526 to $626,350 | $250,501 to $626,350 | $501,051 to $751,600 | $250,526 to $375,800 |
| 37% | $626,351 or more | $626,351 or more | $751,601 or more | $375,801 or more |
For example, if a taxpayer earned $60,000 in tax year 2025 and had single filing status, they would fall into the 22% marginal tax rate bracket. However, this doesn’t mean they paid 22% of their entire income. Higher rates only apply to the portion of income that exceeds the corresponding threshold.
How the Effective Tax Rate Works (Calculation Example)
What makes effective tax complicated to understand is that two people in the same tax bracket can have different effective tax rates.
Example 1: Income of $80,000 (Single Filer)
A taxpayer who earned $80,000 in 2025 pays tax at the 22% rate only on the portion of income that exceeds $48,475.
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10% Bracket: $1,192.50 (on first $11,925)
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12% Bracket: $4,386.00 (on income between $11,926 – $48,475)
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22% Bracket: $6,605.00 (on remaining $31,525)
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Total Tax: $12,183.50
Effective Tax Rate:
Example 2: Income of $60,000 (Single Filer)
A taxpayer who earned $60,000 in 2025 also has a 22% marginal rate, but this rate only applies to the amount over $48,475 ($11,525).
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10% Bracket: $1,192.50
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12% Bracket: $4,386.00
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22% Bracket: $2,115.00
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Total Tax: $7,693.50
Effective Tax Rate:
The Result: Both taxpayers are in the same 22% “bracket,” but the person earning more has a higher effective rate (15.23% vs 12.82%) because a larger chunk of their money was taxed at the higher rate.
Effective Tax Rate vs. Marginal Tax Rate
The U.S. tax system is “progressive.” It uses marginal tax rates instead of a single flat tax rate.
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Marginal Tax Rate: This is the tax rate applied to the very last dollar you earned. It tells you how much tax you would pay on an additional dollar of income.
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Effective Tax Rate: This is the weighted average rate you pay on your total income. This provides a much clearer definition of your actual tax liability.
How to Find Out Your Effective Tax Rate
To calculate your effective tax rate yourself, follow these steps:
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Take your completed tax return for 2025.
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Find the total tax amount you need to pay on Line 24 of Form 1040.
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Divide that number by your taxable income on Line 15.
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Multiply by 100 to get the percentage.
Is the Effective Tax Rate Collected from Salary?
The effective tax rate is not paid on the gross amount earned (salary). Tax is paid on taxable income, which is what remains after subtracting deductions (standard or itemized).
Example: If gross income for 2025 was $60,000 and a person took the standard deduction of $15,750, taxable income will be $44,250. Only that portion is subject to taxation.
Key Takeaways
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Progressive System: The federal tax system charges higher percentages as income increases.
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Effective vs. Marginal: The marginal rate is the top bracket you reach; the effective rate is the actual average percentage you pay to the IRS.
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Exclusions: The effective tax rate usually refers only to federal income tax and does not include state taxes, Social Security, or sales taxes.
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Planning: Knowing your effective rate is essential for accurate budgeting and retirement planning.
How Gennadiy Arnautov CPA Can Help?
The effective tax rate shows how much tax you actually pay and helps you better understand your real tax burden. Our specialists will help:
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Calculate your effective tax rate taking into account all income, deductions, and credits.
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Explain the difference between marginal and effective tax rates in simple terms relevant to your situation.
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Identify opportunities for legally reducing your tax burden to lower your effective rate.
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Build a tax strategy to optimize taxes for future life changes (marriage, retirement, etc.).
Don’t pay more than necessary! Understanding your effective tax rate is the first step to competent tax management.
Contact Gennadiy Arnautov CPA for professional consultation and transparent tax planning.
