Effective tax rate also known as marginal tax rate is the average rate you pay on all your taxable income.
The effective tax rate simplifies comparisons among companies and taxpayers.
Formula to calculate effective tax rate.
Example:
Suppose the income tax expense of a firm is $ 20,000 and its earnings before tax is $ 300,000. Calculate the effective tax rate.
Therefore, the firm’s effective tax rate is 8.3%.
