TTax Effective Tax Rate

[gmott18]

On the instruction page of my return , Turbo Tax shows an effective Tax rate.

I looked at everything and that number is the Tax/AGI.   Not sure why they call that the effective tax rate. Most definitions of effective tax rates are Tax/Taxable income.  

If you Google it or look at it in INVESTOPEDIA, effective tax rate is taxes/taxable income so this rate from TT is not effective tax rate. I dont know what tax/AGI is actually called.  Maybe that is total effective tax rate? *based on total income, not taxable.  Or we can say,... effective taxable tax rate and effective total tax rate? idk.

[gmott18]

I am going to label this as the Turbo Tax effective tax rate (tax/AGI) and I will label my other tax rate as effective tax rate = taxes/Taxable income. Not sure why TT calls the tax /AGI, effective tax rate, but it is what i will call... Turbo Tax Effective tax rate. No one else calls that effective tax rate anywhere.

[gmott18]

anyone going to answer this one? Guess not.

[macuser_22]

Different people calculate it different ways - there are many definitions.    It's a rather meaningless number anyway - it really does not tell you much no matter how it is calculated.   I don't know why they even include it.

Investopedia defines it as the 2019 1040 line 16 (tax) by line 11b (AGI).

https://www.investopedia.com/terms/e/effectivetaxrate.asp

[gmott18]

Most definitions of effective tax rate in financial sites usually involve taxable income in the denominator, not AGI. TT uses AGI.  Thx though the response. I just call it TT effective tax rate and the normally-defined one is the effective tax rate.  I am moving on. 

[macuser_22]

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@gmott18 wrote:

Most definitions of effective tax rate in financial sites usually involve taxable income in the denominator, not AGI. TT uses AGI.  Thx though the response. I just call it TT effective tax rate and the normally-defined one is the effective tax rate.  I am moving on. 

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I'm curious, why do you even care about the effective tax rate and what use to you put it to?  What meaningful information does it give to you reguardless of how it is calculated.

[gmott18]

I just like to compare it year over year, although many factors play into it.

Nice to see my taxes vs taxable income or in TTs case , my taxes vs AGI. I get it though, it is not always apples to apples when your income levels change due to whatever reason.