Definition
The share of your total income actually paid in tax: total tax divided by total income. It is always lower than your marginal rate under the progressive system, because earlier dollars are taxed in lower brackets and some income is shielded by deductions.
Why it matters
People routinely confuse their bracket with their real tax burden and overestimate what they pay. The effective rate is the honest number for looking backward, and the marginal rate is the right one for decisions about the next dollar.
Example
A single filer earning $85,000 sits in the 22% bracket but pays about $10,500 of federal income tax after the standard deduction, an effective rate near 12%. The bracket answers what a raise would be taxed at; the 12% answers what the year actually cost.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.