Average tax rate formula investopedia
average tax rate. Definition. The total amount of taxes paid by an individual or business divided by taxable income. This rate will vary based on the amount of income received during the taxable period. For example, if Steve paid $3,000 in taxes on income of $25,000, his average tax rate would be 12%. Once you track down these numbers, simply plug them into the average tax rate formula : Average Tax Rate = Taxes Paid or Due/Total Taxable Income x 100 Let's try an example. Imagine that you earned