How to Calculate Your Expected Tax Rate

When planning your finances, understanding your expected tax rate is essential for accurate budgeting and avoiding surprises during tax season. One common way to estimate how much you’ll owe is by using the IRS tax brackets to determine your marginal tax rate based on your projected income. Here's how to calculate your expected tax rate step by step.

Step 1: Estimate Your Total Taxable Income

Start by estimating your total taxable income for the year. This includes wages, self-employment income, investment income, and any other earnings, minus deductions such as the standard deduction or itemized deductions. For 2025, the standard deduction for a single filer is expected to be around $14,600, but check the latest figures from the IRS.

Example: If you project $70,000 in gross income and plan to take a $14,600 standard deduction, your taxable income would be $55,400.

Step 2: Refer to IRS Tax Brackets

The IRS tax system is progressive, meaning different portions of your income are taxed at different rates. For example, in 2024, single filers were taxed as follows:

• 10% on income up to $11,000
• 12% on income from $11,001 to $44,725
• 22% on income from $44,726 to $95,375

Using our example of $55,400 in taxable income:

• The first $11,000 is taxed at 10% = $1,100
• The next $33,725 ($44,725 - $11,000) is taxed at 12% = $4,047
• The remaining $10,675 ($55,400 - $44,725) is taxed at 22% = $2,348.50

Total estimated tax: $1,100 + $4,047 + $2,348.50 = $7,495.50

Step 3: Determine Your Effective Tax Rate

Your effective tax rate is the percentage of your total income that goes to federal taxes. To find this, divide your total estimated tax by your gross income.

Using our example: $7,495.50 ÷ $70,000 = 10.7% effective tax rate

Summary

To calculate your expected tax rate:

1. Estimate taxable income.
2. Use IRS tax brackets to determine how much tax applies at each level.
3. Add the tax amounts together for your total estimated tax.
4. Divide total tax by gross income for your effective tax rate.

Knowing both your marginal rate (the highest rate applied to your income) and your effective rate helps you plan better for withholdings, estimated payments, and financial goals.