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    • How do I calculate my effective tax rate using Excel?
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    How do I calculate my effective tax rate using Excel?

    Umito Posted on

    Your effective tax rate can be calculated using Microsoft Excel with a few standard functions and an accurate breakdown of your income by tax bracket. Most of the steps consist of searching for the Internal Revenue Service (IRS) tax brackets and separation of your taxable income in the cells.

    Key takeaways

    • The IRS announces its inflation adjustments online each year, adjusting the income covered by each tax bracket.
    • You can determine your tax for the year by applying the percentage rate for each tax bracket to the income in that period.
    • Add the results of all the parentheses.
    • Divide this number by your taxable income for the year to determine your effective tax rate.

    IRS tax brackets

    The IRS annually announces its inflation-adjusted tax brackets, income thresholds for tax breaks, and standard deduction amounts. The changes come into effect on January 1.

    You would not apply the 2025 prices announced when preparing your 2024 tax return in 2025. Use the 2024 prices published at the end of 2023.

    Separation of Earned Income

    Tax brackets are divided into income brackets to which a tax percentage applies. Here is the distribution of single filers in 2024:

    • 10%: $0 to $11,600
    • 12%: $11,601 to $47,150
    • 22%: $47,151 to $100,525
    • 24%: $100,526 to $191,950
    • 32%: $191,951 to $243,725
    • 35%: $243,726 to $609,350
    • 37%: $609,351 or more

    The percentages remain the same in 2025 but the income ranges are adjusted for inflation:

    • 10%: $0 to $11,925
    • 12%: $11,926 to $48,475
    • 22%: $48,476 to $103,350
    • 24%: $103,351 to $197,300
    • 32%: $197,301 to $250,525
    • 35%: $250,526 to $626,350
    • 37%: $626,351 or more

    Create a cell for each income tax rate and multiply it by the amount of your income in that bracket in 2024. Here is the tax return you will file in 2025. It would look like this if your 2024 income was $60,000:

    • $11,600 x 10% for the first $11,600
    • $35,550 ($47,150 – $11,600) x 12% for the next income increase
    • $12,850 ($60,000 – $47,150) x 22% for last income increase

    Add the bracket results to determine the total tax you will have to pay before claiming tax credits, deductions or income adjustments.

    • $11,600 x 10% = $1,160
    • $35,550 x 12% = $4,266
    • $12,850 x 22% = $2,827

    Find your effective tax rate

    Your marginal tax rate is the bracket percentage that applies to the highest dollar of your income. That would be 22% in our example: the rate you would pay on your income of $47,150 to $60,000.

    Your effective tax rate is the percentage of all your income that you pay in taxes. You can calculate it by dividing your total tax owed by your earned income.

    Your total tax in our example would be $8,253: $1,160 taken at 10% plus $4,266 taken at 12% plus $2,827 taken at 22%. Your income was $60,000, so your effective rate would be 13.75%: $8,253 / $60,000.

    What is adjusted gross income?

    U.S. tax law provides “income adjustments” that can be subtracted from your total income to determine the amount you are taxed on. These adjustments include the student loan interest you paid and certain retirement contributions you made.

    However, you won’t pay tax on your entire adjusted gross income (AGI), because you can then subtract your standard deduction or itemized deductions from that amount. You also cannot itemize and claim the standard deduction. You must choose one option or the other.

    Your AGI also determines your eligibility for certain credits and other tax breaks.

    What is modified adjusted gross income?

    Your modified adjusted gross income (MAGI) is your adjusted gross income with some income adjustments added. The IRS also uses this number to determine your eligibility for tax provisions such as education tax credits and the amount you can contribute to a traditional IRA.

    How does the standard deduction work?

    The standard deduction also reduces your taxable income because it is subtracted from your AGI. The number you get determines your marginal tax rate, the percentage you’ll pay on your highest income.

    The standard deduction is based on your filing status and the amount is adjusted each year to keep pace with inflation. A single person can claim a standard deduction of $15,000 for the 2025 tax year, compared to $14,600 in 2024. The deduction increases after age 65.

    The essentials

    Calculating your effective tax rate is a matter of basic math after determining how much of your income falls into each applicable tax bracket and its associated percentage rate.

    Create a row in Excel for each income tax rate. Enter the applicable portion of your income that falls into this bracket and multiply it by the percentage. Enter the result in the last column then total the numbers that appear in this column. This is your total tax. Divide this number by your taxable income for the year to get your effective tax rate.

    Umito
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