What Ordinary Income Tax Rates Are

Ordinary income tax rates are the federal tax percentages the IRS applies to wages, salaries, interest, and most other income that is not from selling investments. These rates change based on how much you earn and your filing status — single, married filing jointly, head of household, or married filing separately. The rates themselves are set by Congress and adjusted each year for inflation.

The federal government uses a progressive tax system, which means higher earners pay a higher percentage on their income. You do not pay one flat rate on all your money. Instead, your income is divided into brackets, and you pay the rate for each bracket only on the income that falls within it. For example, if you are single in 2024, you might pay 10% on the first $11,600 of income, then 12% on income between $11,601 and $47,150, and so on.

Key Takeaways

  • Ordinary income includes wages, salaries, interest, and rental income, and is taxed at rates that range from 10% to 37% depending on your total income and filing status.
  • The tax system uses brackets, so you pay different rates on different portions of your income, not one rate on everything you earn.
  • Your ordinary income tax rate is different from your effective tax rate — the effective rate is your total tax divided by your total income and is always lower.
  • Long-term capital gains and may have access to dividends are taxed at lower rates than ordinary income, even though they appear on your tax return.
  • The IRS adjusts tax brackets each year for inflation, so the income ranges that fall into each bracket change annually.

The Seven Federal Tax Brackets for Ordinary Income

The IRS divides ordinary income into seven brackets. In 2024, for a single filer, those brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income ranges for each bracket depend on your filing status and change every year. A married couple filing jointly has wider brackets than a single person, so the same income may fall into a lower bracket.

Your marginal tax rate is the rate that applies to your last dollar of income — the highest bracket your income reaches. This is not the same as your effective tax rate. If you earn $60,000 as a single filer in 2024, your marginal rate might be 22%, but your effective rate (total tax owed divided by total income) will be lower, around 8% to 10%, because you paid 10% on the first portion and 12% on the middle portion.

Congress sets these brackets and rates, and they can change if new tax laws pass. The current brackets have been in place since 2018 and are scheduled to expire after 2025 unless Congress extends them. When they expire, the rates and brackets from before 2018 would return unless new legislation prevents it.

What Counts as Ordinary Income

Ordinary income includes almost all money you receive except for certain investment gains. Your wages and salary are ordinary income. Interest from savings accounts, bonds, and CDs is ordinary income. Rental income from property you own is ordinary income. Self-employment income, tips, and bonuses are all ordinary income.

Some types of income are taxed at lower rates even though they appear on your return. Long-term capital gains — profits from selling stocks, real estate, or other assets you held for more than one year — are taxed at 0%, 15%, or 20%, depending on your income level. may have access to dividends from stocks are also taxed at these lower rates. These are not ordinary income rates, even though the income appears on your tax return.

Certain income is not taxed at all. Municipal bond interest is usually tax-free. Some Social Security benefits are not taxed if your income is below certain thresholds. Gifts and inheritances are not taxed as income to the person who receives them. Understanding which income is ordinary and which is not affects how much you owe.

How Your Filing Status Affects Your Tax Rate

Your filing status determines the income ranges for each bracket. A married couple filing jointly has the widest brackets, so they can earn more income before reaching a higher rate. A single filer has narrower brackets. Head of household filers (usually unmarried people supporting dependents) fall between single and married filing jointly. Married filing separately has the narrowest brackets and is rarely the best choice.

For example, in 2024, the 22% bracket for a single filer starts at $47,151 of income. For a married couple filing jointly, the 22% bracket does not start until $100,526. This is why married couples often owe less total tax on the same combined income than two single people would owe separately.

The Difference Between Marginal Rate and Effective Rate

Many people confuse their marginal rate with their effective rate, and the difference matters. Your marginal rate is the percentage you pay on your last dollar of income. Your effective rate is your total tax bill divided by your total income. Because of the bracket system, your effective rate is always lower than your marginal rate.

If you earn $75,000 as a single filer in 2024, your marginal rate is 22% — that is the rate on your last dollars of income. But you paid 10% on the first $11,600, 12% on the next $35,550, and 22% on the remaining $27,850. Your total tax is roughly $9,200, which is about 12% of your $75,000 income. That 12% is your effective rate. Understanding this difference helps you make better decisions about whether additional income is worth pursuing.

How Inflation Adjustments Change Brackets Each Year

The IRS adjusts tax brackets every January to account for inflation. This means the income ranges for each bracket shift upward each year, even if Congress does not change the rates themselves. Without these adjustments, inflation would push more of your income into higher brackets over time, even if your actual purchasing power stayed the same. This is called bracket creep.

The adjustment is based on the Consumer Price Index (CPI), which measures how prices change throughout the year. If inflation is high, the brackets move up more. If inflation is low, they move up less. The IRS publishes the new brackets in late October or early November for the following year, so you can see them before tax season begins.

State and Local Income Tax on Ordinary Income

Federal ordinary income tax is only part of what you owe. Most states also tax ordinary income, and some cities do as well. State tax rates vary widely — some states have no income tax at all, while others tax ordinary income at rates up to 13%. Your state's brackets and rates work the same way as the federal system: progressive brackets that increase with income.

When you file your federal return, you report your federal tax. When you file your state return (if your state requires one), you report your state tax separately. Some people who move between states or work in a state different from where they live have to file in multiple states. The IRS allows you to deduct state and local taxes (SALT) up to $10,000 per year on your federal return, which slightly reduces your federal tax bill.

Frequently Asked Questions

What is the difference between ordinary income and capital gains?

Ordinary income includes wages, interest, and rental income, and is taxed at rates from 10% to 37%. Capital gains are profits from selling investments you held for more than one year, and are taxed at 0%, 15%, or 20%. Capital gains rates are lower because Congress designed them to encourage long-term investing. Short-term capital gains (from assets held one year or less) are taxed as ordinary income.

Do I pay the same tax rate on all my income?

No. The progressive bracket system means you pay different rates on different portions of your income. Your first dollars are taxed at the lowest rate, and each higher portion is taxed at a higher rate. You only pay the highest rate on the income that falls into the highest bracket you reach.

Can my ordinary income tax rate change from year to year?

The rates themselves (10%, 12%, 22%, etc.) do not change unless Congress passes new tax legislation. However, the income ranges for each bracket adjust annually for inflation. Also, your personal rate can change if your income changes enough to move you into a different bracket, or if your filing status changes.

Why do some people pay less tax than others on the same income?

Filing status, deductions, and the type of income all affect your tax bill. A married couple filing jointly pays less on the same income than a single person because their brackets are wider. People who claim deductions (standard or itemized) reduce their taxable income. People with capital gains or may have access to dividends pay lower rates on that portion of income.

What happens to tax brackets after 2025?

The current tax brackets and rates are set to expire after 2025 unless Congress extends them. If they expire, the rates and brackets from before 2018 would return. Congress may pass new legislation before then to extend, modify, or replace the current system. Tax planning for 2026 and beyond should account for this uncertainty.