Effective Tax Rate
Definition
The average rate at which your income is taxed, calculated by dividing your total tax liability by your total taxable income. Unlike the marginal rate (which applies only to the last dollar earned), the effective rate reflects what you actually pay overall. It is always lower than your marginal rate because of the progressive tax bracket system.
Example
If your taxable income is $80,000 and your total federal tax is $13,000, your effective tax rate is 16.25% ($13,000 / $80,000), even though your marginal rate is 22%.