The top 1 percent pays roughly one-quarter of all federal income tax

The wealthiest Americans pay a disproportionate share of federal income tax. The top 1 percent of earners — those making roughly $600,000 or more annually, though this threshold shifts year to year — paid about 26 percent of all federal income tax in recent years. The top 10 percent paid roughly 71 percent. This concentration at the top means the bottom 50 percent of earners paid around 3 percent of federal income tax.

These figures come from the Internal Revenue Service and the Congressional Budget Office, which track tax payments by income level. The percentages change slightly each year based on how many high earners there are and how much they earned, but the pattern has held steady for decades: a small number of people pay most of the income tax collected.

Income tax is only one type of tax Americans pay. Payroll taxes (Social Security and Medicare), sales taxes, property taxes, and corporate taxes make up the rest. The distribution across all tax types looks different from income tax alone, because lower-income households pay a larger share of their earnings in payroll and sales taxes.

Key Takeaways

  • The top 1 percent of earners paid roughly 26 percent of all federal income tax in recent years, while the top 10 percent paid about 71 percent.
  • Income tax is progressive, meaning higher earners pay a higher percentage of their income in taxes, but the actual dollar amount they pay is much larger.
  • When you include payroll taxes, sales taxes, and property taxes, lower-income households pay a larger share of their total earnings in taxes than income tax figures alone suggest.
  • Corporate taxes and capital gains taxes affect how much wealthy individuals and large companies contribute to the federal government.

How income tax brackets create the concentration at the top

The federal income tax system is progressive, meaning the tax rate increases as income increases. In 2024, a single filer earning $47,150 pays 12 percent on income above $11,600. Someone earning $500,000 pays 35 percent on income above $231,250. This structure means higher earners not only pay more in total dollars but also pay a higher percentage of their income.

Because the top 1 percent earns a much larger share of total income than their population share, they also pay a much larger share of taxes. If the top 1 percent earned 20 percent of all income and paid 26 percent of income tax, they are paying slightly more than their income share. The bottom 50 percent earns roughly 13 percent of income but pays only 3 percent of income tax, meaning they pay less than their income share.

Tax brackets change each year for inflation. The IRS publishes new brackets annually, so the exact income thresholds shift. What stays constant is the structure: more income means a higher tax rate on the portion above each threshold.

Capital gains and investment income shift the tax burden

Much of the wealth held by the top 1 percent comes from investments and assets, not salary. When you sell an investment at a profit, that gain is taxed as capital gains. Long-term capital gains (assets held over one year) are taxed at lower rates than ordinary income — 0, 15, or 20 percent depending on total income, compared to income tax rates that go up to 37 percent.

This means a person earning $1 million in salary pays more tax than a person with $1 million in investment gains. Wealthy households often have more income from investments, so they benefit from these lower rates. The Congressional Budget Office estimates that capital gains and dividends make up a much larger share of income for the top 1 percent than for middle-income households.

Some high earners also use strategies like holding assets until death (which resets the cost basis and avoids capital gains tax entirely) or borrowing against assets instead of selling them. These are legal approaches that reduce the taxes paid on wealth accumulation.

Payroll taxes hit lower earners harder as a percentage of income

Social Security and Medicare taxes (payroll taxes) are 15.3 percent combined — 12.4 percent for Social Security and 2.9 percent for Medicare. You pay half, and your employer pays half. These taxes explore only to wages, not to investment income, and Social Security tax stops explore once you earn over $168,600 (in 2024; this threshold rises each year).

Because payroll taxes cap at a certain income level and do not explore to investment income, they take up a much larger percentage of earnings for someone making $50,000 than for someone making $500,000. A person earning $50,000 pays 15.3 percent of their income in payroll taxes. A person earning $500,000 pays 15.3 percent only on the first $168,600, which works out to about 5 percent of their total income.

When you add payroll taxes, sales taxes, and property taxes together, the effective tax rate (total taxes paid as a percentage of income) becomes more even across income levels than income tax alone suggests. Lower-income households pay a larger share of their earnings in these other taxes.

State and local taxes vary widely by location

Federal income tax is only part of the picture. State income taxes, local income taxes, sales taxes, and property taxes vary dramatically depending on where you live. Some states have no income tax at all (Texas, Florida, Nevada, Wyoming, and others), while others tax income at rates up to 13 percent (California). Sales tax ranges from 0 percent (in some states) to over 10 percent when local taxes are included.

Property taxes are typically the largest tax burden for homeowners and vary by county and municipality. A $500,000 home might cost $5,000 per year in property tax in one state and $15,000 in another. These differences mean that two people with identical federal tax bills can pay very different total taxes depending on where they live.

High-income earners often live in high-tax states like New York and California, which increases their total tax burden. However, some wealthy individuals move to low-tax states like Florida or Texas to reduce their overall tax liability.

Corporate taxes and who ultimately bears the burden

Corporations pay federal income tax on profits at a 21 percent rate (as of 2024). When a corporation pays less tax, shareholders — who are often wealthy individuals — keep more of the profit. When a corporation pays more tax, it may reduce dividends, lower wages, or raise prices, which affects shareholders, workers, and consumers differently.

Economists disagree on who ultimately bears the burden of corporate taxes. Some argue that corporate tax cuts benefit shareholders and executives most. Others argue that workers and consumers bear part of the burden through lower wages or higher prices. The actual effect depends on how the company responds to the tax change.

Corporate tax rates have changed significantly over time. The federal rate was 35 percent before 2018 and was reduced to 21 percent under the Tax Cuts and Jobs Act. Many large corporations also use deductions, credits, and strategies to reduce their taxable income below the headline rate.

How the tax system has changed over time

The share of taxes paid by the top 1 percent has grown since the 1980s. In 1980, the top 1 percent paid roughly 19 percent of federal income tax. By 2020, that share had risen to about 26 percent. This shift reflects both changes in tax law (tax rates on high earners have fluctuated) and changes in income distribution (the top 1 percent's share of total income has grown).

Tax rates on the highest earners have moved up and down with different administrations and Congress. The top marginal tax rate was 70 percent in 1980, fell to 28 percent in 1988, rose to 39.6 percent in 1993, fell to 35 percent in 2003, and is currently 37 percent. These changes affect how much the highest earners pay.

The Tax Cuts and Jobs Act of 2017 reduced corporate tax rates and individual tax rates across the board, with larger percentage reductions for higher earners. Some provisions of that law are set to expire after 2025, which would change tax rates again.

Frequently Asked Questions

Do the wealthy pay their fair share of taxes?

This depends on what you think "fair" means. By income share, the top 1 percent pays more than their share of income tax. By effective tax rate (percentage of total income), wealthy households often pay less than middle-income households when you include all taxes. Economists and policymakers disagree on what the right distribution should be.

What percentage of Americans pay federal income tax?

Roughly 60 percent of Americans file a federal income tax return. Not all of them owe tax — some receive refunds because taxes withheld from paychecks exceed what they owe. The bottom 40 percent of earners typically owe little to no federal income tax, though they pay payroll and sales taxes.

Why do some billionaires pay very little in income tax?

Billionaires often have most of their wealth in company stock or other assets that have not been sold. Until an asset is sold, there is no taxable gain. They can borrow against their assets to fund spending without triggering a tax event. This is legal and is one reason wealth concentration does not always match income tax payments.

How much do corporations pay in taxes compared to individuals?

Corporate taxes make up roughly 10 percent of federal revenue, while individual income taxes make up roughly 50 percent. Payroll taxes make up roughly 35 percent. Corporate tax revenue has declined as a share of total revenue since the 1980s, partly due to lower tax rates and partly due to changes in how companies structure income.

Will my taxes change if I move to a different state?

Yes. Moving from a high-tax state like California to a no-income-tax state like Texas can significantly reduce your state and local tax burden. However, federal income tax remains the same regardless of where you live. Some states also tax income from residents who move away, so check your old state's rules before assuming you are free of its taxes.