Effective Tax Rate
Software reference · Written guide Content date 1 min read
When preparing a Form 1040 in Tax Processors Plus, at the top of the interactive screen is a field labeled "Effective Tax Rate". The percentage shown is equal to the total tax (reduced by nonrefundable credits) divided by the taxable income.
Total tax
Income tax
+ additional taxes on Schedule 2
− nonrefundable credits on Schedule 3
− nonrefundable credits on Schedule 8812
Taxable income
Adjusted gross income
− qualified business income deduction
− either standard deduction or itemized deductions
− additional deductions on Schedule 1-A
Depending on the composition of the return, the effective tax rate can easily exceed 100%, i.e., the total tax being greater than the taxable income.