Average tax rate

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Average tax rate

Taxes as a fraction of income; total taxes divided by total taxable income.

Effective Tax Rate

The tax rate one pays assuming that one pays a flat rate rather than under a progressive system. Under progressive tax systems, one pays different rates for different amounts in income. For example, one may pay 10% for the first $10,000 of income and 25% for all additional income. In practice this means that one would pay somewhere between 10% and 25%. One calculates the effective tax rate simply by taking the total tax liability, dividing by one's taxable income and multiplying by 100.

Suppose one makes $20,000 in a year and is taxed under the above system. This person pays $1000 (10%) of the first $10,000 and 2500 (25%) of the second $10,000. The total tax liability is $3500, which when divided by the $20,000 of income and multiplied 100, is found to have an effective tax rate of 17.5%.
References in periodicals archive ?
Taxpayers' savings from the general income-averaging formula is equivalent to a reduction in the personal average tax rate of individuals in the lowest quintile of almost 0.
One reason partnerships pay such a low average tax rate is that nearly half their income (45 percent) is classified as capital gains and dividend income, which is taxed at preferential rates.
The vertical effect is determined by two factors: the average tax rate t and the progressivity measure K.
17) For taxpayers in the top 1%, the hypothetical average tax rate with 1988 policy parameters, but 1986 pretax incomes (column (3)) would have been much higher than the observed average tax rate in 1988 (column (4)) due to the fact that a substantially larger share of their income in 1986 consisted of long-term capital gains which were taxed at a higher rate in 1988.
Indirect regression takes place when the fall in average tax rate is accompanied by a fixed level of extreme tax.
For this large change in income, the average tax rate is more relevant.
Keywords: Corporate income tax, cost of capital, effective marginal tax rates, effective average tax rates, Republic of Macedonia
Although the statutory top marginal tax rate was over 90% in the 1950s, the average tax rate for the highest income taxpayers was much lower.
6) The dashed level lines denote the average tax rate for each income category for the 1979-2000 period, the period before the Bush tax cuts.
I believe its important to note before this begins that Romney is a millionaire and paid well below the average tax rate, paying only 13.
When one takes into account credits and deductions, says Scott Hodge of the Tax Foundation, "millionaires paid an average tax rate of 25 percent--more than three times the average tax rate for a family earning between $50,000 and $75,000.
This assumption will be inaccurate for individuals whose paychecks vary enough throughout the year that their average tax rate is not consistent from one paycheck to another.