What is an effective tax rate?
An example of an AI chatbot conversation about understanding effective tax rates.
What is an effective tax rate?
The effective tax rate is the average rate at which an individual or corporation is taxed on their income.
How is it different from the marginal tax rate?
The marginal tax rate is the rate applied to the last dollar of income earned, while the effective tax rate is the total tax paid divided by total income.
Can you give me an example of how to calculate it?
Sure! If you earn $50,000 and pay $7,500 in taxes, your effective tax rate would be $7,500 divided by $50,000, which is 15%.
Why is it important to know your effective tax rate?
Knowing your effective tax rate helps you understand your overall tax burden and can aid in financial planning.
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