Last year, for the first time since getting married, my husband and I entered a new tax bracket for our federal taxes. We were interested to see what this would do to our effective tax rate, which in previous years had been in the single digits.
Of course, 2013 was anything but a traditional tax year for us. I went from a full-time freelancer to a W-2 employee; my husband changed jobs not once, but twice; we sold one house, moved to a new state, and bought a new house. So it was a complicated filing for us, to say the least.
What did that do to our effective tax rate, which was just 6.7% for the FY2012? Let’s find out…
First, you need to find your adjusted gross income (AGI). This is the portion of your earnings that will be taxed by the IRS. You’ll find it on Line 37 of your 2013 1040 form. Now, I’m not going to share my exact income – that’s a little TMI, if you ask me – so we’ll just call it AGI for short.
Next, you’ll need to find your total tax responsibility. That’s on Line 61 of your 1040. Again, I’m not going to share what my total tax burden was for FY2013, so instead we’ll just call it “T” for short.
Now, to calculate your effective tax rate, divide your total tax responsibility, or “T,” by your adjusted gross income, or AGI:
T / AGI = Effective Tax Rate
For my family, our effective tax rate for 2013 was 9.3%. Still in the single digits, although significantly higher than the 6.7% effective tax rate we paid during the 2012 fiscal year. However, considering the fact that the marginal tax rate for married couples filing jointly was 25% for our income level last year, I guess things could have been worse.
What was your 2013 effective tax rate? How did it compare to your previous tax returns?