Tax rates are the percentage of your income or purchase that goes to federal, state, or local government

A tax rate is straightforward the percentage of money you owe based on what you earn, buy, or own. If your tax rate is 12 percent and you owe $1,200 in taxes, your taxable income was $10,000. The rate itself does not change — what changes is the amount of money it applies to. Federal income tax rates range from 10 percent to 37 percent depending on how much you earn. State income tax rates vary by state, from zero percent in states like Texas and Florida to over 13 percent in California. Local taxes, sales taxes, and property taxes each have their own rates set by your city or county.

The confusion usually comes from the difference between your marginal rate (the rate on your last dollar earned) and your effective rate (the average rate you pay on all your income). Most people pay an effective rate much lower than their marginal rate because the tax system uses brackets — you pay 10 percent on your first chunk of income, then 12 percent on the next chunk, and so on. This means your total tax bill is usually lower than if you multiplied your entire income by your highest bracket.

Key Takeaways

  • Federal income tax rates in 2024 range from 10 percent to 37 percent, with most workers falling into the 12 percent or 22 percent bracket.
  • Your effective tax rate (what you actually pay) is almost always lower than your marginal rate (the rate on your last dollar) because income is taxed in brackets.
  • State income tax rates vary from zero percent in nine states to over 13 percent in others, and some states tax only certain types of income like dividends.
  • Sales tax, property tax, and local income tax rates are set by your city or county and vary widely even within the same state.
  • Self-employed people pay both the employee and employer portion of Social Security and Medicare taxes, which adds roughly 15.3 percent on top of income tax.

How federal income tax brackets work

The federal government uses a progressive tax system, which means higher earners pay a higher percentage. But the brackets do not work the way most people think. You do not pay 22 percent on your entire income just because you fall into the 22 percent bracket. Instead, you pay 10 percent on the first portion, then 12 percent on the next portion, then 22 percent only on the income above that threshold.

For 2024, the federal brackets for single filers are roughly: 10 percent on income up to $11,600; 12 percent from $11,600 to $47,150; 22 percent from $47,150 to $100,525; and so on up to 37 percent on income over $578,100. Married couples filing jointly have higher thresholds at each bracket. These numbers change slightly each year because the IRS adjusts them for inflation. The key point is that your effective rate — the percentage you actually pay — will be somewhere between 10 percent and your marginal bracket, usually much closer to 10 percent unless you earn very high income.

State and local income tax rates

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 income tax rates that range from 1 percent to over 13 percent. Some states use a flat rate — everyone pays the same percentage regardless of income. Others use brackets similar to the federal system. A few states tax only certain types of income, like capital gains or retirement withdrawals.

Your city or county may also charge local income tax on top of state tax. This is common in Ohio, Pennsylvania, Kentucky, and a few other states, but rare in most of the country. Local rates are usually between 1 and 3 percent. If you live in one state and work in another, you may owe income tax to both, though most states offer a credit to avoid double taxation. Check your state's tax website or a tax professional to understand your specific situation, because the rules vary significantly.

Sales tax and property tax rates

Sales tax is charged when you buy goods or services and is collected by the seller at the register. The combined state and local sales tax rate ranges from zero percent in states like Oregon and Montana to over 10 percent in states like Louisiana and Tennessee. Most states fall between 6 and 8 percent. Some states exempt groceries, medicine, or clothing; others tax everything. A few states have no sales tax at all. The rate you pay depends entirely on where you make the purchase, not where you live.

Property tax is charged by your county or municipality based on the assessed value of your home or land. Rates vary dramatically — from under 0.3 percent of home value in Hawaii to over 2 percent in New Jersey and Illinois. Property tax is usually paid once or twice per year and is often included in your mortgage payment if you have a loan. Unlike income tax, property tax rates do not change based on your income; they are the same percentage for everyone in that jurisdiction, though the dollar amount you owe depends on what your property is worth.

Self-employment tax and payroll taxes

If you work for an employer, your paycheck shows deductions for Social Security and Medicare taxes. These are called FICA taxes and total 7.65 percent of your wages (6.2 percent for Social Security up to a cap, and 1.45 percent for Medicare with no cap). Your employer pays an equal 7.65 percent on your behalf, but you do not see that money — it goes directly to the government. Self-employed people must pay both portions themselves, which is 15.3 percent of their net business income, in addition to regular income tax.

This is why self-employed workers often owe more in total tax than employees earning the same income. A self-employed person earning $50,000 owes roughly $7,065 in self-employment tax alone, plus federal and state income tax. An employee earning $50,000 pays only $3,825 in FICA taxes (the employer covers the rest). If you are self-employed, you can deduct half of your self-employment tax from your income before calculating income tax, which provides some relief but not complete offset.

How to find your actual tax rate

Your tax return shows your total tax bill and your total income. To find your effective rate, divide total tax by total income and multiply by 100. For example, if you paid $8,000 in federal income tax on $60,000 of income, your effective rate is 13.3 percent. This is the number that matters for understanding what you actually paid, not the bracket you fall into.

Your paycheck stub shows your marginal rate indirectly — the deductions listed are based on your bracket and filing status. If you want to know your exact federal bracket for the current year, look up the IRS tax bracket table for your filing status. State and local rates are published by your state revenue department and your city or county assessor's office. Many tax software programs and online calculators will show you both your marginal and effective rates once you enter your income and deductions.

Why tax rates matter for planning

Understanding your tax rate helps you make decisions about retirement savings, investments, and major purchases. Money you contribute to a traditional 401(k) or IRA reduces your taxable income, which can lower your effective rate. If you are close to the edge of a higher bracket, a large bonus or capital gain might push you into it, increasing your overall tax bill. Conversely, if you have a year with lower income, you might fall into a lower bracket and pay less tax on the same amount of work.

Tax rates also affect how much you should set aside if you are self-employed or have irregular income. Knowing that you will owe roughly 25 to 30 percent of your net income in combined federal, state, and self-employment taxes (the exact amount depends on your state and bracket) helps you avoid a surprise bill at tax time. Many self-employed people set aside 25 to 30 percent of each payment they receive and deposit it into a separate account quarterly.

Frequently Asked Questions

What is the difference between marginal rate and effective rate?

Your marginal rate is the percentage you pay on your last dollar earned — the highest bracket you fall into. Your effective rate is the average percentage you pay on all your income combined. If you earn $60,000 and fall into the 22 percent bracket, your marginal rate is 22 percent, but your effective rate might be 13 percent because you paid lower rates on the first portions of your income.

Do I pay the same tax rate in every state I work in?

No. If you work in a state different from where you live, you typically owe income tax to both states. Most states offer a credit to prevent double taxation, but the rules vary. Some states have reciprocal agreements with neighboring states. Contact your state revenue department to understand your specific situation.

Is sales tax the same everywhere in my state?

No. Sales tax varies by city and county within the same state. A purchase in one city might be taxed at 7 percent while the same purchase in a neighboring city is taxed at 8 percent. The rate depends on where the transaction occurs, not where you live.

How much should I set aside for taxes if I am self-employed?

Most self-employed people should set aside 25 to 30 percent of their net income for federal, state, and self-employment taxes combined. The exact amount depends on your state and your income bracket. Many accountants recommend setting aside money quarterly and making estimated tax payments to avoid penalties.

Can I reduce my tax rate?

You cannot change the tax rate itself, but you can reduce your taxable income through deductions and credits. Contributing to a 401(k), traditional IRA, or HSA lowers your taxable income. Claiming deductions for mortgage interest, charitable donations, or business expenses also reduces the income that gets taxed at your rate.