The top federal income tax rate is 37 percent, but it only applies to income above a certain threshold
The highest federal income tax rate in the United States is 37 percent. This rate applies only to the portion of your income that falls into the top tax bracket. For 2024, that means income above $191,950 if you file as a single person, above $383,900 if you file as married filing jointly, and above $287,450 if you file as head of household. The rate changes slightly each year because the brackets adjust for inflation.
The key thing to understand is that you do not pay 37 percent on all your income. The U.S. uses a progressive tax system, which means different portions of your income are taxed at different rates. If you earn $200,000 as a single filer, you pay 37 percent only on the $8,050 above the $191,950 threshold. The rest of your income is taxed at lower rates — 35 percent, 32 percent, 24 percent, and so on, depending on which bracket each portion falls into.
Key Takeaways
- The highest federal income tax rate is 37 percent and applies only to income above $191,950 (single filers in 2024), $383,900 (married filing jointly), or $287,450 (head of household).
- You pay this rate only on the income that exceeds the threshold, not on your entire income.
- State income tax rates vary widely — some states have no income tax, while others charge up to 13.3 percent on top of federal taxes.
- The highest tax bracket has changed over time; it was as high as 94 percent in the 1940s and has been 37 percent since 2018.
- Self-employed people and investors may owe additional taxes beyond income tax, including self-employment tax and capital gains tax.
How the tax brackets work in practice
The federal government divides income into seven brackets, each with its own rate. In 2024, those rates are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. Your income moves through each bracket in order, like filling a cup with water. Once you fill the 10 percent bracket, the next dollars go into the 12 percent bracket, and so on.
Suppose you are a single filer earning $100,000 in 2024. Your first $11,600 is taxed at 10 percent. Your income from $11,601 to $47,150 is taxed at 12 percent. Your income from $47,151 to $100,000 is taxed at 22 percent. You never reach the 24 percent bracket, so you never pay that rate. Your total federal tax is roughly $13,000, which is about 13 percent of your income — much lower than the 22 percent rate on your highest dollars.
State income taxes can push your total rate higher
Federal income tax is only part of what you owe. Most states also charge income tax, and those rates stack on top of the federal rate. California has the highest state income tax rate at 13.3 percent on the highest earners. New York, Hawaii, Vermont, and the District of Columbia all charge 10 percent or more on top earners. Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — have no state income tax at all.
If you live in California and earn income in the top federal bracket, you could owe 37 percent federal plus 13.3 percent state, for a combined rate of 50.3 percent on your highest income. In states with no income tax, your top rate is just the federal 37 percent. Some cities and counties also charge local income taxes, which can add another 1 to 4 percent depending on where you live.
Capital gains and investment income have their own top rates
If you earn money from selling stocks, real estate, or other investments, you may pay capital gains tax instead of ordinary income tax. Long-term capital gains — assets you held for more than a year — are taxed at lower rates: 0 percent, 15 percent, or 20 percent at the federal level, depending on your income. The 20 percent rate applies to long-term gains above $518,900 for single filers in 2024.
Short-term capital gains, from assets you sold within a year, are taxed as ordinary income at your regular bracket rate — up to 37 percent federally. Dividends from stocks are also taxed as capital gains if they are may have access to dividends, or as ordinary income if they are not. High earners may also owe the Net Investment Income Tax, an additional 3.8 percent on investment income above certain thresholds.
Self-employed people owe self-employment tax on top of income tax
If you work for yourself, you pay both the employer and employee portions of Social Security and Medicare taxes. This is called self-employment tax, and it is 15.3 percent on net earnings — 12.4 percent for Social Security and 2.9 percent for Medicare. There is no cap on the Medicare portion, so high earners pay it on all their self-employment income. You can deduct half of this tax when you calculate your adjusted gross income, but you still owe the full amount.
A self-employed person in the top federal bracket could owe 37 percent income tax plus 15.3 percent self-employment tax, for a combined federal rate of 52.3 percent before state taxes. This is why many self-employed people and small business owners work with accountants to structure their income in ways that reduce their tax burden.
The top tax rate has changed significantly over American history
The 37 percent rate is historically low. During World War II and the Korean War, the top federal rate reached 94 percent. In the 1950s and 1960s, it was between 70 and 91 percent. It dropped to 50 percent in 1981, then to 28 percent in 1988 under the Tax Reform Act. It has moved up and down since then, reaching 39.6 percent in 2013 before dropping to 37 percent in 2018 as part of the Tax Cuts and Jobs Act.
These changes matter because they affect how much money the government collects and how much high earners keep. They also affect how people structure their finances — when rates are very high, people have stronger incentives to use deductions, retirement accounts, and other strategies to reduce their taxable income.
How to find your own effective tax rate
Your effective tax rate is the percentage of your total income that you actually pay in taxes. It is always lower than your marginal rate — the rate on your highest dollars — because of the progressive bracket system. To find yours, divide your total federal income tax by your total income before taxes.
If you earned $150,000 and paid $25,000 in federal income tax, your effective rate is about 16.7 percent. Your marginal rate — the rate on your last dollar earned — might be 24 percent, but you do not pay that on all your income. Your tax return shows your total tax in the bottom line of your 1040 form. Divide that number by your total income to see what percentage you actually paid.
Frequently Asked Questions
Do I pay 37 percent on all my income if I am in the top bracket?
No. You pay 37 percent only on income above the threshold for your filing status. The rest of your income is taxed at lower rates. If you earn $200,000 as a single filer, you pay 37 percent on roughly $8,000 and lower rates on the remaining $192,000.
What is the difference between marginal rate and effective rate?
Your marginal rate is the tax rate on your last dollar earned — in this case, 37 percent. Your effective rate is your total tax divided by your total income. Most people's effective rate is much lower than their marginal rate because they pay lower rates on the first portions of their income.
Do I owe the highest tax rate if I live in a state with no income tax?
You still owe the 37 percent federal rate on income above the threshold, but you avoid state income tax. However, you may owe local taxes depending on your city or county. Some states without income tax make up revenue through sales tax or property tax instead.
Is capital gains tax the same as income tax?
No. Long-term capital gains are taxed at lower rates — 0, 15, or 20 percent federally — than ordinary income. Short-term capital gains are taxed as ordinary income at your regular bracket rate, which could be up to 37 percent.
What happens if the tax brackets change?
The brackets adjust each year for inflation, so the income thresholds move up. The rates themselves change only when Congress passes new tax law. The current 37 percent rate has been in place since 2018, but Congress can change it at any time.