Effective Tax Rate
Percentage
Represents the average rate at which a corporation or individual is taxed on their pre-tax income. Effective Tax Rate offers a clear picture of the actual tax rate being paid by the company. This may differ from the nominal tax rate due to deductions, credits, and other factors.
Formula
(Total Tax Expense / Taxable Income) x 100
Example
If a company has a taxable income of $500,000 and a total tax expense of $150,000, its effective tax rate would be 30%.