The highest earners pay the largest share of federal income tax

The top 10 percent of earners in the United States pay roughly 70 percent of all federal income tax collected. The top 1 percent alone pays about 40 percent. This concentration at the top exists because the federal income tax system is progressive — the tax rate increases as your income rises, and high earners face much steeper rates on their additional dollars.

A single person earning $50,000 per year in 2024 pays a different effective rate than someone earning $500,000. The brackets themselves are set by Congress and change each year. For 2024, the top federal income tax rate is 37 percent, applied to income above roughly $191,950 for single filers. But effective tax rate — what you actually pay as a percentage of total income — is lower because only income in each bracket gets taxed at that bracket's rate.

State and local taxes add another layer. High-income earners in states like California, New York, and New Jersey pay combined state and federal rates that can exceed 50 percent on the highest portion of their income. Lower-income earners in those same states pay much less because state tax brackets are also progressive.

Key Takeaways

  • The top 10 percent of earners pay roughly 70 percent of all federal income tax, while the bottom 50 percent pays about 3 percent.
  • Federal income tax is progressive, meaning higher earners face higher tax rates on each additional dollar of income.
  • Your effective tax rate — what you actually pay as a percentage of your total income — is lower than your marginal rate because only income within each bracket gets taxed at that bracket's rate.
  • State and local taxes vary widely by location, so total tax burden depends on where you live as much as how much you earn.
  • Self-employed people and business owners often pay more in total taxes because they owe both the employee and employer portions of payroll taxes.

How the progressive tax system works

The U.S. federal income tax uses tax brackets, not a flat rate. Each bracket applies only to income within a specific range. For 2024, a single filer with $100,000 in taxable income does not pay 24 percent on all of it — they pay 10 percent on the first roughly $11,600, then 12 percent on income from $11,601 to $47,150, then 22 percent on income from $47,151 to $100,525, and so on.

This is why your marginal tax rate (the rate on your last dollar earned) differs from your effective tax rate (total tax divided by total income). A person earning $100,000 might have a marginal rate of 22 percent but an effective rate of around 13 percent. High earners face marginal rates of 32, 35, or 37 percent, but their effective rates are still lower because only the income above each threshold gets taxed at the higher rate.

Congress adjusts these brackets annually for inflation. The 2024 brackets are wider than 2023's, meaning you can earn more before moving into the next bracket. This adjustment happens automatically and is called bracket creep prevention.

Who pays the most in absolute dollars

In raw dollars, high-income earners pay vastly more than anyone else. A person earning $1 million per year pays tens of thousands more in federal income tax than a person earning $100,000. The IRS publishes annual data showing that the top 1 percent of earners pays more in total federal income tax than the bottom 90 percent combined.

However, this does not mean high earners pay a higher percentage of their income than middle-income earners. A person earning $50,000 might pay an effective rate of 5 percent (roughly $2,500), while a person earning $500,000 might pay an effective rate of 25 percent (roughly $125,000). The second person pays far more in dollars but not necessarily a higher percentage of their income — and in some cases, depending on deductions and credits, the percentage can be lower.

Capital gains — profits from selling stocks or property — are taxed differently than wages. Long-term capital gains (assets held over one year) face lower rates: 0, 15, or 20 percent depending on income level. This means wealthy people whose income comes largely from investments may pay a lower effective rate than someone earning the same amount in salary.

Self-employed and business owners pay more in payroll taxes

If you work for an employer, your employer pays half of your Social Security and Medicare taxes (payroll taxes). You pay the other half, deducted from your paycheck. If you are self-employed or own a business, you pay both halves yourself — 15.3 percent total on net self-employment income (12.4 percent for Social Security up to a cap, 2.9 percent for Medicare with no cap).

This means a self-employed person earning $100,000 pays roughly $15,300 in self-employment tax alone, while an employee earning $100,000 pays roughly $7,650 in payroll taxes (with the employer covering the other $7,650). The self-employed person can deduct half of their self-employment tax when calculating adjusted gross income, but they still owe the full amount upfront.

Small business owners also pay corporate income tax if they structure as a C corporation, or they pay individual income tax on business profits if they structure as an S corporation, LLC, or sole proprietorship. The structure chosen affects total tax burden significantly.

State and local taxes create wide variation

Federal income tax is only part of the picture. State income tax rates range from zero (in states like Texas, Florida, and Wyoming) to over 13 percent (in California). Local income taxes in cities like New York City and Philadelphia add another 3 to 4 percent. A high earner in California pays state income tax of 13.3 percent on top of federal rates, while a high earner in Texas pays zero state income tax.

States without income tax often rely on sales tax and property tax instead. Texas has no state income tax but charges 8.25 percent sales tax statewide (plus local additions). Property taxes vary enormously — New Jersey averages over 2 percent of home value annually, while Alabama averages under 0.4 percent. A wealthy person in New Jersey pays far more in property tax than a wealthy person in Alabama, even if their income tax is lower.

This means total tax burden depends heavily on where you live. A person earning $200,000 in New York City might pay 50 percent or more of their income in combined federal, state, and local taxes. The same person in Texas might pay 35 percent or less.

Deductions and credits lower taxes for some high earners

The tax code allows deductions and credits that reduce taxable income or tax owed. The standard deduction — a flat amount you can deduct without itemizing — is $14,600 for single filers and $29,200 for married couples filing jointly in 2024. Many people use this instead of itemizing.

High earners often itemize deductions instead, claiming mortgage interest, property taxes, charitable donations, and state and local taxes (capped at $10,000 per year). This can significantly lower their taxable income. A person earning $500,000 with $50,000 in itemized deductions pays tax on $450,000 instead.

Tax credits — which reduce tax owed dollar-for-dollar — are often limited to lower and middle-income earners. The Earned Income Tax Credit, Child Tax Credit, and education credits phase out at higher incomes. This means high earners cannot use these credits to reduce their tax burden, while lower earners can.

Corporate taxes and investment income complicate the picture

Corporations pay federal income tax at a flat 21 percent rate on profits (set by the 2017 Tax Cuts and Jobs Act). However, corporate tax is paid before profits are distributed to shareholders as dividends. Shareholders then pay individual income tax on those dividends. This creates double taxation — the same profit is taxed twice, once at the corporate level and once at the individual level.

Wealthy individuals often own significant stock in corporations or investment funds. Dividends and capital gains from these holdings are taxed at preferential rates (0, 15, or 20 percent for long-term gains) rather than ordinary income rates (up to 37 percent). This means a wealthy person whose income comes largely from investments may pay a lower effective tax rate than a middle-income person earning salary.

Some high-income earners use tax-advantaged strategies like charitable remainder trusts, opportunity zone investments, or business loss deductions to reduce taxable income. These strategies are legal but available mainly to those with substantial assets and access to tax professionals.

Frequently Asked Questions

Do the wealthy pay their fair share of taxes?

This is a political question without a single answer. By the numbers: the top 10 percent pays 70 percent of federal income tax, while the bottom 50 percent pays 3 percent. Whether this is "fair" depends on your view of what tax burden should be. Some argue high earners should pay more; others argue they already pay the vast majority.

What is the difference between marginal and effective tax rate?

Your marginal rate is the tax rate on your last dollar of income — the rate of the bracket you are currently in. Your effective rate is your total tax divided by your total income. A person in the 24 percent bracket might have an effective rate of 15 percent because lower portions of their income are taxed at lower rates.

Why do some rich people pay lower tax rates than middle-class people?

This happens when income comes from long-term capital gains or dividends rather than salary. These are taxed at 0, 15, or 20 percent, while salary is taxed at rates up to 37 percent. A billionaire whose wealth comes from stock appreciation may pay a lower effective rate than a doctor earning $300,000 in salary.

Do I pay federal income tax if I earn below the standard deduction?

No. If your income is below the standard deduction for your filing status, you owe no federal income tax. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. You may still owe self-employment tax if you are self-employed.

How much do state and local taxes add to my total burden?

This varies widely by location. In states with no income tax like Texas or Florida, you pay zero state income tax but may pay higher sales or property tax. In high-tax states like California or New York, state and local taxes can add 10 to 15 percent to your total burden. Your location matters as much as your income.