Effective Tax Rate
The average rate you actually pay across all your income — total tax divided by total income.
Your effective tax rate is your total tax divided by your total income — the blended average across every bracket your income passes through. Because lower brackets tax your early dollars at low rates, your effective rate is always lower than your marginal (top-bracket) rate.
It's the right number for understanding your overall tax burden, while your marginal rate is the right number for decisions about the next dollar. Confusing the two is a common mistake: people overestimate the tax on a conversion or a bonus by applying their effective rate, or panic about a marginal rate that only touches a thin slice of income.
This definition is general information to help you understand a term, not financial, tax, or legal advice. Figures that change year to year (limits, thresholds, rates) should be confirmed against current official sources. For guidance on your situation, a licensed fee-only fiduciary is the right next step.