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Effective Tax Rate: Overview, Calculation, and How It Works

By Frank BassUpdated Jun 10, 2025 at 1:22 PM | Fact-checked by Robin Hartill, CFP

Key Points

  • Effective tax rate is your average tax rate as a percentage of total income.
  • Marginal tax rate is the tax on your highest dollar earned, not your total income.
  • Historically, top marginal rates have been as high as 94%, but effective rates have been much lower.

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