The average tax rate is the percentage of a taxpayer’s total taxable income that is paid in taxes. It is calculated by dividing the total amount of taxes owed by the taxable income and multiplying by 100.
For example, if someone earns 50,000 and owes 7,500 in taxes, their average tax rate is 15% (7,500 ÷ 50,000 × 100).
Unlike the marginal tax rate, which applies to the last dollar earned, the average tax rate gives an overall view of the tax burden. It is useful for understanding the proportion of income paid in taxes across all income levels.