How to Calculate a Federal Tax Rate

Form 1040 can be used to calculate federal tax rate.

The federal income tax system is a progressive system in which the tax rate starts out low and increases in percentage as income increases. This is because a 10 percent rate for a person earning $20,000 a year is worth a lot more to that person than the same 10 percent rate for a person earning $100,000. Because of the progressive tax system, it can be confusing to determine what the true federal tax rate is because it is simply not listed. However, this value can be easily calculated using tax returns.

Step 1

Determine taxable income amount. Taxable income is the income after deductions and exemptions have been claimed and is different from gross income (which is the total income earned in the year). On Form 1040EZ, this is located on line 6.

Step 2

Determine income tax amount. Income is calculated using what are called tax brackets, and there are different rates for each tax bracket (see Resources). The total income tax amount is the sum of all calculated income tax values for all tax brackets. On Form 1040EZ, this is located on line 11.

Step 3

Divide the income tax amount by the taxable income amount. The result is the equivalent federal income tax rate. For example, if taxable income was $70,650 and the income tax amount was $13,843.75, then $13,843.75 divided by $70,650 equals 19.6 percent. Even though a taxable income amount of $70,650 falls under three tax brackets (10, 15, and 25 percents), the average amount based on amount taxed was 19.6 percent.

Things You'll Need

  • Federal tax return Form 1040

  • Calculator

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