What Is an Effective Tax Rate? Your effective tax rate is the percentage of your taxable income you pay in taxes – essentially an average of the various rates at which your income is taxed.

Here’s how. How To Calculate Your Effective Tax Rate Since we follow a progressive tax system, different portions of your income are taxed at different rates.

Subtracting this from 1 gives 0.85 for the taxable portion of the account. If you decide to withdraw $10,000, multiplying by 0.85 gives a taxable IRA withdrawal amount of $8,500.

Income tax cut This is the easiest thing to calculate. To figure out how much you would save by flattening the tax rates, you need your total taxable nonbusiness income.