Effective tax rate.

In plain English

The effective tax rate is your total tax divided by your total income, written as a percentage. It is the honest, blended number for what you really paid, and it is almost always lower than the rate on your last dollar, because the US taxes your first dollars at low rates and only your highest dollars at the top rate. People often quote their bracket as if their whole income were taxed at that rate, which overstates the bite. The effective rate is the figure to use when you compare years or work out what a raise really costs you.

01Why it matters

Confusing your bracket with your effective rate makes taxes look scarier than they are and can lead to bad calls, like turning down a raise.

02The math, step by step

You are in the 22 percent bracket, but your total federal tax comes to 9,000 dollars on 75,000 dollars of income. Your effective tax rate is 9,000 divided by 75,000, or 12 percent, not 22 percent.

03What this is NOT