The highest federal income tax rate is 37 percent, applied to the top income bracket
The top federal income tax rate in the United States is 37 percent. This rate applies to income above a certain threshold that changes each year. For 2024, that threshold is $191,950 for single filers, $287,925 for married couples filing jointly, and $191,950 for heads of household. The rate has been 37 percent since 2018.
This is a marginal rate, which means it only applies to income within that top bracket, not to all your income. If you earn $200,000 as a single filer, you do not pay 37 percent on the entire amount. You pay lower rates on the income below $191,950, and 37 percent only on the $8,050 above that threshold.
The federal government also allows deductions and credits that can lower your actual tax bill below what the bracket suggests. State and local income taxes, which vary by where you live, are separate from the federal rate and can be significantly higher or lower depending on your state.
Key Takeaways
- The 37 percent rate is the highest federal bracket and applies only to income above $191,950 (single filers in 2024), not to your entire income.
- Income tax uses a progressive system where each portion of your income is taxed at the rate for its bracket, so higher earners pay more overall but not a flat 37 percent on everything.
- The income thresholds for each bracket adjust annually for inflation, so the dollar amount that triggers the top rate changes from year to year.
- State and local income taxes are separate from federal rates and can range from zero percent in some states to over 13 percent in others.
How the seven federal tax brackets work
The federal system uses seven tax brackets, not just one. Your income is taxed in layers: the first portion falls into the lowest bracket, the next portion into the second bracket, and so on. This is called a progressive tax system.
For 2024, the seven federal brackets for single filers are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. Each bracket has a starting income threshold. For example, the 12 percent bracket starts at $11,601 and ends at $47,150. Income within that range is taxed at 12 percent. Income above $47,150 moves into the 22 percent bracket, and so on.
The thresholds are different for married couples filing jointly, heads of household, and married couples filing separately. The IRS publishes updated thresholds every January for the current tax year.
Why the top rate is 37 percent and not higher
The 37 percent rate became the top federal rate in 2018 when Congress passed the Tax Cuts and Jobs Act. Before that, the highest rate was 39.6 percent. The change lowered the top bracket for all high earners.
Congress can change tax rates at any time through legislation. The current rates are scheduled to expire after 2025 unless Congress extends them, which would return the top rate to 39.6 percent. However, Congress has extended similar provisions before, so the future rate is uncertain.
The top rate has varied throughout U.S. history. In the 1950s and 1960s, it exceeded 90 percent. In the 1980s, it dropped to 50 percent, then 28 percent. The rate reflects decisions by Congress about how much tax revenue to collect and how to distribute the tax burden.
How your actual tax bill differs from the top bracket rate
Even if you fall into the 37 percent bracket, you do not owe 37 percent of your income in federal tax. You owe 37 percent only on the income within that bracket, plus the lower percentages on all the income below it.
Your effective tax rate is the percentage of your total income that you actually pay in federal tax. For someone earning $250,000, the effective rate is typically around 24 to 26 percent, not 37 percent. The difference comes from the fact that most of your income is taxed at lower rates.
Deductions and credits also reduce your tax bill. The standard deduction (which was $14,600 for single filers in 2024) reduces your taxable income before any tax is calculated. Credits like the Earned Income Tax Credit or Child Tax Credit reduce your tax dollar-for-dollar after the tax is calculated. These reduce the effective rate further.
State and local income tax rates can exceed the federal rate
Nine states have no state income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest). The remaining 41 states and Washington, D.C. have their own income taxes.
State rates vary widely. Some states have a flat rate that applies to all income—Colorado uses 4.4 percent, Illinois uses 4.95 percent. Other states use progressive brackets similar to the federal system. California's top state rate is 13.3 percent, one of the highest in the country. New York's top rate is 10.9 percent.
When you combine federal and state taxes, high earners in high-tax states can face combined rates above 50 percent on their top income. For example, a top earner in California pays 37 percent federal plus 13.3 percent state, totaling 50.3 percent on income in the highest bracket. This is why some high earners move to lower-tax states.
How inflation adjusts the income thresholds each year
The dollar amounts that define each bracket are adjusted annually for inflation. This is called bracket creep adjustment. The IRS announces the new thresholds in October or November for the following tax year.
For example, if inflation is 2.4 percent in a given year, the threshold for the top bracket increases by 2.4 percent. In 2024, the top bracket threshold for single filers was $191,950. In 2025, it increased to $199,375 for single filers. This means you need to earn more in actual dollars to enter the top bracket each year.
Without this adjustment, inflation alone would push more people into higher brackets even if their real income (adjusted for inflation) stayed the same. The adjustment prevents this automatic tax increase.
Capital gains and dividends may be taxed at different rates
Income from investments—capital gains and may have access to dividends—is often taxed at lower rates than ordinary income like wages or salary. Long-term capital gains (assets held over one year) are taxed at 0 percent, 15 percent, or 20 percent depending on your income level, not at the ordinary income rates.
This means a high earner in the 37 percent bracket might pay only 20 percent on investment income. This is one reason wealthy individuals with significant investment income may have a lower effective tax rate than someone earning the same amount in wages.
may have access to dividends from stocks follow the same preferential rates as long-term capital gains. Non-may have access to dividends and short-term capital gains (assets held one year or less) are taxed as ordinary income at your bracket rate.
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 that bracket. All income below the threshold is taxed at the lower rates for those brackets. Your effective tax rate—the percentage of your total income you actually pay—is much lower than 37 percent.
Will the 37 percent rate change after 2025?
The current tax rates are set to expire after 2025 unless Congress extends them. If they expire, the top rate would return to 39.6 percent. Congress has extended similar provisions before, but the future is uncertain and depends on legislative action.
How does state income tax affect the highest rate I pay?
State income tax is separate from federal tax and is added on top. In high-tax states like California or New York, the combined federal and state rate on top income can exceed 50 percent. Nine states have no income tax, so residents there pay only the federal rate.
Are capital gains taxed at the same 37 percent rate?
Long-term capital gains are taxed at preferential rates of 0 percent, 15 percent, or 20 percent depending on your income, not at the ordinary income rate of 37 percent. This is one reason investment income is often taxed less heavily than wages.
What was the highest income tax rate in the past?
The top federal rate has been much higher historically. In the 1950s and 1960s, it exceeded 90 percent. It dropped to 50 percent in the 1980s, then to 28 percent. The current 37 percent rate has been in place since 2018.