Your Effective Tax Rate is the true percentage of your income that goes to taxes. It differs from your marginal tax rate, which only applies to your highest bracket.
Marginal vs Effective
If you earn $100,000 as a single filer: - Your marginal rate is 24% (the bracket your top dollar falls in) - Your effective rate is approximately 17.4% (the actual percentage of total income paid)
This happens because the US uses a progressive tax system — only the income within each bracket is taxed at that bracket's rate.
Components
Your total effective rate includes: 1. Federal income tax — Progressive brackets from 10% to 37% 2. FICA — Social Security (6.2%) + Medicare (1.45%) = 7.65% 3. State income tax — Varies from 0% to 13.3% 4. Local taxes — Some cities/counties levy additional taxes
Why It Matters for Relocation
Moving from a high-tax state (California, New York) to a no-tax state (Texas, Florida) can reduce your effective rate by 5-10 percentage points — saving $5,000-$15,000+ annually on a six-figure salary.