The average tax rate equals total taxes divided by total taxable income.

Calculating the average tax rate involves adding all of the taxes paid under each bracket and dividing it by total income.

The average tax rate will always be lower than the marginal tax rate.

## What is the average tax rate?

The average tax rate is the total amount of tax divided by total income. For example, if a household has a total income of $100,000 and pays taxes of $15,000, the household’s average tax rate is 15 percent. The marginal tax rate is the incremental tax paid on incremental income.

## What is the average tax rate UK?

Income Tax rates and bands

Band | Taxable income | Tax rate |
---|---|---|

Personal Allowance | Up to £12,500 | 0% |

Basic rate | £12,501 to £50,000 | 20% |

Higher rate | £50,001 to £150,000 | 40% |

Additional rate | over £150,000 | 45% |

## How marginal tax rate is calculated?

One method you can always use is to calculate your tax both ways, either considering the anticipated income from the proposed investment or excluding it. Divide the difference in tax by the amount of income from the investment, and you’ll get the economic marginal tax rate from investing.