Effective Tax Rate = Total Tax Expense ÷ Pre-Tax Income
Use total tax expense from the income statement
Use pre-tax income, also called earnings before tax, from the income statement
Multiply the result by 100 to express it as a percentage
Effective Tax Rate (%) = (Total Tax Expense ÷ Pre-Tax Income) × 100
If total tax expense is $20,000 and pre-tax income is $100,000, the effective tax rate is 20%
If pre-tax income is zero or negative, the effective tax rate may not be meaningful
For personal taxes, Effective Tax Rate = Total Taxes Paid ÷ Total Taxable Income
Include federal, state, and local taxes if calculating a combined effective tax rate
Exclude refundable credits and non-tax items unless specifically required by the calculation method