A price already includes tax — how much of it is the tax? Divide out the tax factor to recover the net price, then the tax is the rest. The classic VAT/sales-tax back-calculation.
(1 + rate) strips the tax to give the net; the difference is the tax.
The example
A $108 price that includes 8% tax.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | Gross (incl. tax) | $108.00 |
| 3 | Net price | $100.00 |
| 4 | Tax | $8.00 |
The formula
Recover net and tax from gross:
How it works
The gross is the net grossed up by the tax factor:
- Gross = net ×
(1 + rate). To reverse it, divide the gross by(1 + rate)for the net. - The tax is gross minus net — or equivalently
gross × rate / (1 + rate). - Round both to 2 decimals so net + tax equals the gross exactly.
- This is the standard way to split a tax-inclusive (VAT-style) total into its components.
Don’t just multiply the gross by the rate. gross × 8% overstates the tax, because the tax is 8% of the net, not the gross. Always divide by (1 + rate) first.
Try it: interactive demo
Set the tax-inclusive price and rate.
Variations
Tax directly
Without computing net first:
Add tax (forward)
Net to gross:
Effective rate on net
Confirm it:
Pitfalls & errors
Divide, don’t multiply. Tax is a share of the net, not the gross — gross × rate is wrong. Use gross/(1+rate).
Round consistently. Round net and tax to 2 decimals so they add back to the gross.
Compound taxes. If two taxes are layered, back them out in the correct order, not as one combined rate.
Practice workbook
Frequently asked questions
How do I remove tax from a tax-inclusive price in Excel?
Why can't I just multiply the gross by the tax rate?
How do I get the tax amount directly?
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