The effective tax rate is the percent of income or pre-tax profits that an individual or a corporation pays in taxes.

Knowing your effective tax rate gives you a clear picture of your tax liability each year.

How to Calculate Your Effective Tax Rate To calculate your effective tax rate, you need two numbers: the total amount you paid in taxes and your taxable income for that year.

To calculate the marginal tax rate on the investment, you'll need to figure out the additional tax on the new income. In this example, $500 will be taxed at 15% and $500 at 25%.