Income taxes come mostly from high earners, but payroll taxes spread the burden differently

The top 10 percent of earners pay roughly 70 percent of all federal income taxes. The top 1 percent alone pays around 40 percent. But this picture changes when you include payroll taxes (Social Security and Medicare), which are capped at a certain income level and hit middle-class workers harder as a percentage of what they earn. The answer to who pays most depends on which tax you're looking at and how you measure it.

Most people think of "taxes" as income tax alone. That's incomplete. A software engineer earning $300,000 pays income tax on every dollar above the threshold. A nurse earning $80,000 pays income tax on her full salary, but also pays 6.2 percent of her entire paycheck into Social Security—a tax that stops explore once you hit $168,600 in annual earnings (the 2024 cap; this amount changes yearly). The engineer pays less Social Security tax as a percentage of total income than the nurse does.

Key Takeaways

  • The top 10 percent of earners pay about 70 percent of federal income taxes, with the top 1 percent paying roughly 40 percent.
  • Payroll taxes (Social Security and Medicare) are capped at an income threshold, so they take a larger percentage from middle-class workers than from the wealthy.
  • Corporate income taxes and capital gains taxes add another layer—wealthy people earn more from investments, which are taxed differently than wages.
  • State and local taxes vary by location and often hit lower-income households harder as a percentage of their income.
  • The total tax burden depends on income source, state of residence, and which taxes you count.

How income tax burden breaks down by income level

The federal income tax system is progressive, meaning the tax rate increases as income rises. In 2024, there are seven tax brackets ranging from 10 percent to 37 percent. A person earning $50,000 pays a lower average rate than someone earning $500,000.

Because of this structure, high earners contribute the majority of income tax revenue. The Internal Revenue Service (IRS) publishes annual data showing that the top 1 percent of filers pay more in income taxes than the entire bottom 90 percent combined. The top 10 percent pay more than the bottom 90 percent. This is not a secret or a surprise—it's how a progressive tax system is designed to work.

However, the average tax rate for the wealthy is still lower than the marginal rate they pay. Someone in the 37 percent bracket does not pay 37 percent on all their income—only on the portion above the threshold for that bracket. The rest is taxed at lower rates.

Payroll taxes hit middle-income workers harder

Social Security and Medicare taxes (together called payroll taxes) are split between employee and employer, each paying 7.65 percent. Self-employed people pay both halves. These taxes are regressive in practice, meaning they take a larger percentage from lower and middle-income earners.

Here's why: Social Security tax stops at $168,600 of annual income (2024). A person earning $80,000 pays Social Security tax on 100 percent of their wages. A person earning $500,000 pays it on only the first $168,600—about 34 percent of their income. Medicare tax has no cap, but it's only 2.9 percent (1.45 percent employee, 1.45 percent employer), so the impact is smaller.

For a middle-class worker, payroll taxes often exceed income taxes. A nurse earning $70,000 might pay $5,355 in Social Security and Medicare combined, plus roughly $6,000 in federal income tax. A high earner earning $300,000 pays the same $10,737 in payroll taxes but $60,000 or more in income tax. The payroll tax is a much smaller slice of their total burden.

Capital gains and investment income create a different tax picture

Wealthy people earn a larger share of their income from investments—stocks, bonds, real estate—rather than wages. Long-term capital gains (assets held over a year) are taxed at 0, 15, or 20 percent depending on income level. This is lower than the ordinary income tax rates that explore to wages.

A person earning $1 million in wages pays up to 37 percent federal tax. A person earning $1 million in long-term capital gains may pay only 20 percent. This difference matters because investment income is concentrated among the wealthy. The bottom 50 percent of earners receive roughly 2 percent of all capital gains; the top 10 percent receive roughly 90 percent.

This does not mean wealthy people pay no taxes on investments. They do. But the structure of capital gains taxation means investment income is taxed at a lower rate than wage income, and wealthy people earn more from investments.

Corporate taxes and who ultimately bears the burden

Corporations pay federal income tax on profits at a flat 21 percent rate (set in 2017). The question of who really pays corporate tax is debated: economists disagree on whether the burden falls on shareholders, workers through lower wages, or consumers through higher prices.

Corporate tax revenue has declined as a share of total federal revenue over the past 40 years. In the 1950s, corporate taxes made up about 30 percent of federal revenue. Today they make up roughly 10 percent. Individual income taxes now carry the larger share of the federal tax burden.

State and local taxes often hit lower earners harder

Federal income tax is progressive, but state and local taxes—sales tax, property tax, state income tax—often are not. A sales tax of 7 percent takes the same percentage from everyone, but it represents a larger share of a poor person's budget than a rich person's. Someone earning $30,000 spends most of it on taxable goods; someone earning $300,000 saves a larger portion.

Property taxes vary wildly by location and are based on home value, not income. A homeowner in a high-cost area pays more in property tax than a homeowner in a low-cost area, regardless of income. Some states have no income tax but high sales taxes; others have high income taxes and low sales taxes. The total tax burden depends heavily on where you live.

How the tax burden has shifted over time

The share of taxes paid by the wealthy has increased over the past 30 years, even as tax rates have fallen. This is partly because income inequality has grown—the top earners' share of total income has risen, so their share of taxes has risen too. It's also because capital gains have become a larger source of income for the wealthy.

In the 1980s, the top marginal income tax rate was 50 percent. Today it's 37 percent. Yet the top 1 percent pays a larger share of total income tax now than it did then, because their incomes have grown much faster than everyone else's.

Frequently Asked Questions

Do rich people pay their fair share of taxes?

That depends on your definition of "fair." By income tax alone, the wealthy pay a larger share than their population percentage. By total tax burden including payroll and state taxes, the picture is more mixed. This is a values question, not a factual one—different people have different views on what proportion is fair.

Why do some wealthy people pay less in taxes than middle-class people?

Usually because their income comes from capital gains or other investments taxed at lower rates than wages, or because they use deductions and credits that reduce their taxable income. A person earning $10 million in capital gains may pay less total tax than a person earning $200,000 in wages, depending on their specific situation.

What is the difference between marginal and average tax rate?

Your marginal rate is the tax rate on your last dollar of income. Your average rate is your total tax divided by your total income. Someone in the 37 percent bracket has a marginal rate of 37 percent but an average rate much lower—often around 25 to 30 percent—because lower brackets explore to the earlier portions of income.

Do corporations pay more or less tax than they used to?

Corporate tax revenue as a share of federal revenue has fallen from about 30 percent in the 1950s to roughly 10 percent today. The statutory rate is now 21 percent, down from 35 percent before 2017. However, some large corporations pay little or no federal income tax in specific years due to deductions, credits, and loss carryforwards.

How do self-employed people's taxes differ from employees?

Self-employed people pay both the employee and employer portions of payroll tax (15.3 percent total for Social Security and Medicare, though they can deduct half). Employees have their employer pay half. Self-employed people also pay income tax on net profit and may owe quarterly estimated taxes rather than having tax withheld from a paycheck.