The top earners and corporations pay the largest share of federal income tax

The wealthiest individuals and largest corporations pay the most total federal income tax dollars in America, but the picture changes depending on whether you measure by total dollars paid or by percentage of income. The top 1 percent of earners—those making roughly $600,000 or more annually—pay about 40 percent of all federal income tax collected. The top 10 percent pay roughly 70 percent. At the same time, the bottom 50 percent of earners pay around 3 percent of total federal income tax.

This does not mean lower earners pay nothing. Most working Americans pay federal income tax, Social Security tax, and Medicare tax. The difference is in scale: a person earning $50,000 pays a smaller percentage of their income in federal tax than someone earning $500,000, and the total dollars are far smaller.

Key Takeaways

  • The top 1 percent of earners pay roughly 40 percent of all federal income tax, while the top 10 percent pay around 70 percent.
  • Federal income tax is progressive, meaning higher earners pay a higher percentage of their income in tax than lower earners do.
  • Large corporations pay federal corporate income tax, but the effective rate they pay varies widely based on deductions, credits, and where they report profits.
  • State and local taxes, property taxes, and payroll taxes create different tax burdens that do not always follow the same pattern as federal income tax.
  • Tax burden depends on income level, type of income, location, and what deductions or credits a person or business can claim.

How federal income tax brackets create different tax rates

The federal income tax system uses tax brackets, which means different portions of your income are taxed at different rates. If you earn $100,000, you do not pay the same percentage on every dollar. The first portion is taxed at the lowest bracket rate, the next portion at a higher rate, and so on. This is why someone earning $1 million pays a higher percentage of their total income in tax than someone earning $100,000.

For 2024, federal tax brackets range from 10 percent at the lowest end to 37 percent at the highest. A person in the top bracket does not pay 37 percent on all their income—only on the portion that falls within that bracket. This structure means that as income rises, the average percentage of income paid in tax also rises, which is why high earners contribute a larger share of total tax revenue.

The brackets adjust each year for inflation, so the income thresholds that determine which bracket you fall into change annually. This means a person's tax bracket can shift from year to year even if their income stays the same.

Corporate taxes and which companies pay the most

Large corporations pay federal corporate income tax at a 21 percent rate on profits. However, the amount of tax a corporation actually pays depends heavily on deductions, tax credits, and how the company structures its finances. Some large, profitable companies pay little to no federal income tax in a given year because of deductions for depreciation, research credits, or losses carried forward from previous years.

The companies that pay the most in total corporate tax dollars are typically in industries like finance, technology, pharmaceuticals, and energy. These sectors generate high profits and often have fewer deductions available. However, the effective tax rate—the actual percentage of profits paid in tax—varies widely. A company might report $10 billion in profits but pay an effective rate of 15 percent, while another pays 25 percent on similar profits.

State corporate taxes add another layer. Most states charge corporate income tax ranging from 0 to 12 percent, so a corporation's total tax burden includes both federal and state liability. Some states have no corporate income tax, which affects where companies choose to incorporate or report profits.

Self-employed workers and small business owners

Self-employed people and small business owners pay both the employer and employee portions of Social Security and Medicare tax, which is roughly 15.3 percent combined on net self-employment income. This is in addition to federal income tax. An employee's employer pays half of these taxes, but a self-employed person pays both halves.

A small business owner's total tax burden depends on business structure—whether they operate as a sole proprietor, partnership, S-corporation, or LLC. Each structure has different tax consequences. An S-corporation owner might pay less self-employment tax than a sole proprietor with the same income, but the setup and accounting costs more. Many small business owners pay higher effective tax rates than salaried employees at the same income level because they cannot avoid the self-employment tax portion.

State and local taxes shift the burden differently

Federal income tax is only part of the picture. State income tax, local income tax, property tax, and sales tax vary dramatically by location. Some states have no income tax at all—including Texas, Florida, Nevada, and Wyoming. Others, like California and New York, have state income tax rates that reach 13 percent or higher on top of federal tax.

Property taxes are often the largest tax burden for homeowners and vary by county and municipality. A $500,000 home in one county might carry $5,000 in annual property tax, while the same home in another county costs $15,000. Sales tax rates range from 0 percent in some states to over 10 percent in others when state and local rates combine.

Because of these variations, a high earner in California pays a much larger total tax burden than a high earner in Texas, even if their federal income tax is identical. This is why location matters significantly when comparing who pays the most tax overall.

Investment income and capital gains taxes

Wealthy individuals often earn a large portion of their income from investments—stocks, bonds, real estate, and business ownership. Long-term capital gains (profits from assets held over a year) are taxed at preferential rates: 0 percent, 15 percent, or 20 percent depending on income level. These rates are lower than ordinary income tax rates.

This means a person earning $2 million from investments might pay a lower effective tax rate than someone earning $200,000 in wages. The difference in how investment income is taxed versus wage income is one reason wealth concentration and tax burden do not always align the way people expect.

High-income earners also benefit from deductions tied to investments, such as deducting investment losses against gains or deducting mortgage interest on investment properties. These deductions are not available to lower-income earners in the same way, which further affects the effective tax rate.

Tax deductions and credits reduce what high earners owe

Federal tax law allows deductions and credits that reduce tax liability. The standard deduction—a flat amount everyone can subtract from income—is $14,600 for single filers in 2024 and adjusts annually. People with significant deductible expenses, such as mortgage interest, charitable donations, or state and local taxes, may itemize deductions instead, which can be much larger.

High earners often have more deductible expenses: larger mortgages, more charitable giving, higher state and local taxes, and business expenses. However, some deductions phase out at high income levels, which limits the benefit. Tax credits—such as the child tax credit or education credits—directly reduce tax owed and are available to people across income ranges, though some phase out at higher incomes.

The complexity of deductions and credits means that two people earning the same income can pay very different amounts of tax depending on their circumstances. A high earner with significant charitable giving and mortgage interest might pay less than someone at a lower income level with fewer deductions.

Frequently Asked Questions

Do the wealthy pay their fair share of taxes?

This is a values question, not a factual one. The data shows the top 1 percent pays about 40 percent of federal income tax while earning about 20 percent of total income. Whether that is "fair" depends on your view of how tax should work. Some argue high earners should pay more; others argue they already pay a disproportionate share.

What percentage of Americans pay no federal income tax?

Roughly 40 percent of Americans owe no federal income tax in a given year, though most still pay payroll taxes (Social Security and Medicare) if they work. This happens because of the standard deduction, tax credits like the Earned Income Tax Credit, and lower income levels. These people may still receive refunds if they overpaid through withholding.

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

The federal corporate tax rate was reduced from 35 percent to 21 percent in 2017. However, effective tax rates—what companies actually pay—have varied over time based on available deductions and credits. Some large corporations pay very little despite high profits, while others pay closer to the statutory rate.

How does the Alternative Minimum Tax affect high earners?

The Alternative Minimum Tax (AMT) is a separate tax calculation that applies to high-income earners and ensures they pay at least a minimum amount of tax even with large deductions. It applies to individuals with income over roughly $578,000 and affects roughly 200,000 taxpayers annually, mostly high earners and those with significant investment income.

Can I reduce my tax burden by moving to a different state?

Moving to a state with no income tax can reduce your overall tax burden, but it depends on your situation. You must establish residency, which typically requires living there for a full tax year. Property taxes, sales taxes, and other state taxes may offset the savings. Consult a tax professional before making a move based solely on tax considerations.