Please explain how the "effective tax rate" on the Turbo Tax federal return summary is calculated. When I divide my Total Tax into Taxable Income, it does not check out.

Forum|Forum|4 years ago
April 8, 2022
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DianeW777

A blended tax rate, also known as the effective tax rate, is arrived at by any number of factors. The effective tax rate for individuals is the average rate at which their earned income, such as wages, and unearned income, such as stock dividends, are taxed. If you received income from a variety of things like stocks and bonds, interest, dividends, wages or self-employment, this may all play a role in determining your blended tax rate.

It's a calculation based on overall income and the amount of tax calculated on the tax return and is not specifically a marginal or capital gains tax rate.

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chadpnm84Author

Also to clarify, when I divide my Total Tax into AGI, it also does not check out. I can't divide any number on my summary into any other number to yield "effective tax rate".

AmyC

Employee

Effective tax rate is something Turbo Tax uses to help see where you stand, see which w2 is deficient, etc. It should be the tax divided by the total income, not the AGI. It is a number without any real value other than just to let you know when you earn $1, about x% is taxed.

For more effective information see:

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Anonymous

I agree that it *should* be the tax divided by the total income, but it's not. That is the point the original poster is making. The calculation shown on the summary page just seems to make no sense.

So how, exactly, does TurboTax calculate the effective tax rate shown on the summary page? Because it appears to be wrong. Which does not instill confidence in customers.

We are not looking for an explanation of what effective tax rate means. We get it.