There are various tax brackets in most countries, and each bracket has a different rate of tax. For example, let’s look at the sample tax calculation for individuals in the U.S.

As an example, Robert works in finance. He earns $100,000 a year and invests some of it in tax-saving financial instruments. Let’s say that amount is $20,000. As a result, he has a taxable income of $80,000.

**Step 1 – Collect Data **

- Create a dataset as shown in the following image. Our first goal is to calculate Robert’s taxable income.

**Read More: **Formula for Calculating Withholding Tax in Excel

**Step 2 – Calculate Taxable Income**

- For the first bracket, due to the zero lower limit, the maximum Taxable Income will be 9,315.

- To calculate the taxable income for the second Bracket, we need to subtract the lower limit (Cell
**D6**) from the upper limit (Cell**E6**) and then add the result with 1.

- Determine the taxable income for the third bracket in the same way.

- If the income goes into the next bracket, continue until it’s under the upper limit for the bracket.

**Read More: **How to Calculate Social Security Tax in Excel

**Step 3 – Find the Tax Expense**

- Multiply the taxable income (Cell
**F5**) with the tax rate for that bracket (Cell**C5**).

- Calculate the Tax Expenses for other brackets by dragging the
**Fill Handle**to the remaining cells.

- Here are the tax expenses for Robert for all brackets.

**Step 4 – Calculate the Total Taxable Income and Total Tax Expense**

- Use the SUM function in the bottom-right cell to sum cells above it.

**Step 5 – Calculate Federal Tax Rate**

We will compute the Effective Tax Rate by applying the following formula:

**Effective Federal Tax Rate = Total Tax Expenses / Total Taxable Income**

The total tax expense is $15,738.75 (Cell **G8**), and the total taxable income is $80,000 (Cell **F8**).

**Download the Practice Workbook**

## Related Articles

- How to Calculate Income Tax in Excel Using IF Function
- Reverse Tax Calculation Formula in Excel
- How to Calculate Income Tax on Salary with Example in Excel
- How to Calculate Sales Tax in Excel

**<< Go Back to ****Excel Formulas for Finance**** | ****Excel for Finance**** | ****Learn Excel**

Hafizul,

Thank you so much for making calculating the Federal Tax Rate easy.

Myron

Hello

Myron,You are most welcome.

Regards

ExcelDemy