How to Calculate Tax Rate with VLOOKUP

by | Dec 27, 2023

How to calculate Basic Tax Rate in Excel

Navigating through tax brackets and determining the appropriate tax rate for different income levels can be a perplexing task. While conventional Excel formulas like IF statements are available, they might not offer the most straightforward or readable approach. With VLOOKUP —a powerful tool in Excel that simplifies the process by efficiently placing values within income brackets to calculate the Basic Tax Rate. In this guide, we'll explore the steps to leverage VLOOKUP with an approximate match mode to streamline your tax rate calculations.

Update: XLOOKUP alternative has been added.

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Syntax

=VLOOKUP(your income, tax rate table, column position of tax, TRUE)

=XLOOKUP(your income, income column, tax rates column,,-1)

Steps

  1. Start with = VLOOKUP( function
  2. Select or type the reference that contains your salary F5,
  3. Continue with the reference that contains the value B4:C9,
  4. Type the column position of tax rates from left 2
  5. Type ) to close and complete the formula

How

The VLOOKUP has 2 modes:

  1. Exact match
  2. Approximate match

While exact match searches for the exact value, approximate searches for the closest value. Because most of the salaries are unique values, we need to find the closest value in a tax rate table to calculate Basic Tax Rate. The VLOOKUP has 4 arguments:

  1. Value we search
  2. Range of cells we search for the value
  3. Column number that contains values we want
  4. Match type that gets TRUE for approximate match and FALSE for exact match

=VLOOKUP(F5,B4:C9,2,TRUE)

For example; the VLOOKUP searches salary of 36,000 in first column of the tax rate table. Because there isn't any value equals to 36,000, the VLOOKUP locates the closest lower value and returns the corresponding rate, 14%.

Important Note: The approximate-match VLOOKUP assumes that table's first column is sorted. You may see mismatches with unsorted tables.

Also see the related article

Mastering the art of calculating tax rates in Excel becomes remarkably more accessible with the strategic use of VLOOKUP. By understanding the syntax and steps involved, users can efficiently determine the Basic Tax Rate associated with their income levels. Empower yourself with these Excel functions, and say goodbye to the complexities of manually navigating tax brackets. For additional insights, don't forget to explore related articles, such as using SUMPRODUCT to do your taxes for a comprehensive approach to handling your taxes.