What is effective tax rate?

Effective tax rate: Your effective tax rate is the percentage of your taxable income that you’ll pay in taxes. You can calculate this by dividing your tax owed by your total income. This is what you’ll pay. If someone asks you for your tax bracket, the person is almost certainly asking for your top marginal tax rate.

How is income taxed in the United States?

In the U.S., income is taxed progressively with higher tax brackets than in most other nations. Not all income is treated equally, as the more you earn the higher percentage you end up contributing in taxes. All brackets work on a taxable income basis, not necessarily the actual amount of money earned in a given year.

What is a 37% tax rate?

The U.S. currently has seven federal income tax brackets, with rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%. If you’re one of the lucky few to earn enough to fall into the 37% bracket, that doesn’t mean that the entirety of your taxable income will be subject to a 37% tax. Instead, 37% is your top marginal tax rate.