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    Effective tax rate: What is it and when is it used?

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    What is the effective tax rate? When is this used?

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    In our system of taxation, the US has a progressive rate structure which assesses different percentage rates of tax for different income levels. For example, in 2011, a single taxpayer would pay tax as follows:

    For income of $0 - $8500, the rate is 10%,
    For income of $8500 to $34500, the rate of 15%,
    For income of $34500 to $83600, the rate is 25%,
    And followed by three higher levels of tax.
    See page 6 of http://www.irs.gov/pub/irs-pdf/f1040es.pdf

    The effective rate is a simple average calculation used to express the total tax percentage rather than stating the progressive rate. The calculation of effective rates also includes other ...

    Solution Summary

    The cited solution first compares the US progressive tax schedule to the effective rate. With a real world example, the tax is calculated and then compared to the marginal and effective rates. There are 3 paragraphs discussing the uses of the effective rate calculation.