Learn · Explainer
Effective tax rate
Income tax expense as a share of pretax income, why it rarely matches the statutory rate, and the figure for each company.
The short answer
The effective tax rate is a company's income tax expense divided by its pretax income, both from the income statement. It almost never equals the 21% US federal rate, because of state and foreign taxes, tax credits, stock pay deductions and one-time items. Across the 97 companies with positive pretax income, the median effective rate is 19.4%, and 57 are below 21%.
The formula
Effective tax rate = income tax expense ÷ income before income taxes
Both lines are on the income statement. Under the SEC's income statement rules, the income tax line covers only taxes based on income; payroll, property and sales taxes sit in operating costs.
Why it isn't 21%
- Foreign earnings. Profit earned in countries with lower or higher rates is taxed at those rates.
- State and local taxes add to the federal rate.
- Credits and deductions, such as the research credit and deductions when employees' stock awards vest above their grant value, lower it.
- One-time items. Settling an old tax dispute, changing a valuation allowance or a new tax law can swing a single year's rate a long way.
Every 10-K has a tax note with a reconciliation from the 21% statutory rate to the effective rate, line by line. That table is the place to see which of these matter for a given company.
Tax expense and taxes paid
Income tax expense isn't the same as cash paid. It includes deferred taxes, which are owed or recovered in later years. The cash figure, income taxes paid, is in the cash flow statement or its notes.
Every company
Latest fiscal year from each company's income statement, companies with positive pretax income, sorted from lowest rate. A negative rate means a net tax benefit for the year.
Common questions
What is an effective tax rate?
Income tax expense divided by pretax income for the same period: the share of profit a company records as income tax.
Why is a company's tax rate lower than 21%?
Common reasons are lower-taxed foreign earnings, research credits, deductions for employee stock awards and one-time benefits. The tax note in the 10-K reconciles the difference.
Can an effective tax rate be negative?
Yes. When a company records a net tax benefit in a year with positive pretax income, for example from releasing a valuation allowance, the rate is negative.
Is income tax expense the same as taxes paid?
No. Tax expense includes deferred taxes. The cash actually paid is reported separately in the cash flow statement or notes.
Where do I find the tax rate reconciliation?
In the income taxes note to the financial statements in the 10-K.
Disclosures
- Editor holdings
- The editor holds shares of Tesla (TSLA) and SpaceX in a long-term retirement account. The editor holds no position in any other company named on this page. As of Nov 11, 2026.
- Compensation
- Nobody paid for this page. No affiliate links on this page.
- Sources
- Each company's own SEC filings, linked next to each number.
- Last updated
- Nov 9, 2026
General education, the same for every reader. Not a recommendation to buy, sell or hold any security, and it doesn't consider your situation.
More in Learn and Tools · Methodology & Disclosures explains where every number comes from.