Legal Definitions - average tax rate

Definition: Average tax rate is a mathematical figure expressed as a percentage that is used to calculate a tax. It is the taxpayer's tax liability divided by the amount of taxable income. It is also known as effective tax rate.

Examples:

• If a taxpayer has a tax liability of $10,000 and a taxable income of $100,000, the average tax rate would be 10% ($10,000 ÷ $100,000).
• Another example would be if a taxpayer has a tax liability of $5,000 and a taxable income of $50,000, the average tax rate would be 10% ($5,000 ÷ $50,000).

These examples illustrate how the average tax rate is calculated by dividing the tax liability by the taxable income. It is important to note that the average tax rate may vary depending on the taxpayer's income and tax bracket.