The ratio of taxes paid to a given tax base. For individual income taxes, the effective tax rate is typically expressed as the ratio of taxes to adjusted gross income. For corporate income taxes, it is the ratio of taxes to book profits. For some purposes--such as calculating an overall tax rate on all income sources--an effective tax rate is computed on a base that includes the untaxed portion of Social Security benefits, interest on tax-exempt bonds, and similar items. The effective tax rate is a useful measure because the tax code's various exemptions, credits, deductions, and tax rates make actual ratios of taxes to income very different from statutory tax rates. See adjusted gross income and book profits.
The average rate of tax that a taxpayer is paying on taxable income, calculated by dividing the total taxes payable by the taxable income. The terms "average tax rate" and "effective tax rate" are synonymous.
The flat percentage rate equivalent of a given tax payer's progressive rate. For example, if your taxable income is $55,000 in 1993, the first $22,100 would be taxed at 15%. the next $31,400 at 28%, and the last $1,500 at 31%. The effective rate is approximately 24% applied to the entire $55,000.
The income tax you paid divided by your gross income earned over the same period. It differs from your income tax rate because it is an average taken over several years. It is also called your average income tax rate.
The effective tax rate is the amount of tax an individual or firm pays when all other government tax offsets or payments are included, divided by the individual or firm's total income or taxable income. This ratio is usually expressed as a percentage. If certain groups have high degrees of tax offsets compared to other groups their effective tax rate will be lower, even where their official tax rates and marginal tax rates will be equal.