The highest earners pay the largest share of federal income tax

The top 1 percent of earners in the United States pay roughly 40 percent of all federal income tax collected, while the bottom 50 percent pay around 3 percent. This gap exists because the federal income tax system is progressive — the tax rate increases as your income rises. A person earning $500,000 a year pays a higher percentage of their income in taxes than a person earning $50,000.

However, "paying the most" depends on what you measure. The wealthiest Americans pay the largest dollar amounts. Middle-income households pay the largest share of their earnings. And different types of taxes — income tax, payroll tax, capital gains tax, property tax — fall differently on different groups. Understanding which group pays what requires looking at each separately.

Key Takeaways

  • The top 1 percent of earners pay about 40 percent of all federal income tax, while the bottom 50 percent pay around 3 percent.
  • Payroll taxes (Social Security and Medicare) take a larger percentage of income from middle-class workers than from the wealthy, because they stop at a certain income level.
  • Capital gains — profits from selling investments — are taxed at lower rates than wages, which benefits people whose income comes mainly from investments rather than work.
  • State and local taxes vary widely by location, and property taxes often hit middle-income homeowners harder than high earners in some states.

How federal income tax breaks down by income level

The Internal Revenue Service publishes annual data on who pays federal income tax. In the most recent year with complete data, the top 10 percent of earners paid about 70 percent of all federal income tax. The top 1 percent alone paid roughly 40 percent. The middle 50 percent of earners paid about 30 percent. The bottom 50 percent paid around 3 percent.

These numbers reflect both the progressive tax rate structure and the fact that higher earners have more income to tax. Someone in the top 1 percent might pay a federal rate of 37 percent on their highest dollars earned, while someone in the middle class pays 22 percent or 24 percent. But the top earner also has far more total income, so the dollar amount they owe is much larger.

These figures describe federal income tax only. They do not include payroll taxes, state taxes, local taxes, or other forms of taxation. A complete picture requires looking at all of these together.

Payroll taxes hit middle-income workers harder than high earners

Payroll taxes — the 6.2 percent Social Security tax and 1.45 percent Medicare tax that come out of paychecks — work differently than income tax. They are not progressive. Everyone pays the same rate on the same income, up to a limit.

In 2024, the Social Security tax applies only to the first $168,600 of earnings. This means a person earning $200,000 pays Social Security tax on $168,600, while a person earning $50,000 pays on all $50,000. As a percentage of total income, the middle-class worker pays more. A $50,000 earner pays 6.2 percent of their income to Social Security. A $200,000 earner pays 6.2 percent of only $168,600 of their income, which works out to about 5.2 percent of their total earnings.

Medicare tax has no income cap, so it applies to all wages at 1.45 percent. High earners also pay an additional 0.9 percent Medicare tax on income above $200,000 (or $250,000 for married couples filing jointly), which raises their rate to 2.35 percent on those dollars. Still, as a percentage of total income, payroll taxes take a larger bite from middle-income workers than from the wealthy.

Capital gains taxes benefit investors over wage earners

When you sell an investment for more than you paid for it, the profit is called a capital gain. Long-term capital gains — profits on investments held for more than a year — are taxed at lower rates than ordinary income. In 2024, long-term capital gains are taxed at 0 percent, 15 percent, or 20 percent, depending on your income level. Ordinary income is taxed at rates up to 37 percent.

This matters because wealthy people earn a larger share of their income from investments than middle-income people do. A person earning $30,000 a year from wages pays income tax at ordinary rates. A person earning $30,000 from selling stocks held for a year pays capital gains tax at a much lower rate. Over a lifetime, this difference compounds significantly.

The preferential treatment of capital gains is one reason some very high earners pay a lower effective tax rate — the actual percentage of their total income that goes to taxes — than some middle-income earners. Warren Buffett famously noted that he pays a lower effective rate than his secretary, largely because his income comes from investments rather than wages.

State and local taxes vary widely and affect different groups differently

Federal taxes are only part of the picture. State income taxes, state sales taxes, and local property taxes vary dramatically by location. Some states have no income tax at all. Others tax income at rates up to 13 percent. Sales tax ranges from zero to nearly 10 percent depending on the state and city.

Property taxes, which fund local schools and services, often take a larger percentage of income from middle-class homeowners than from the wealthy. A homeowner with a $400,000 house in a high-tax area might pay $8,000 a year in property tax — 2 percent of their income if they earn $400,000. A billionaire with a $50 million property pays $1 million in property tax, but that is 0.001 percent of their income if they earn $100 billion. The absolute dollar amount is much higher, but the percentage is much lower.

Some states with no income tax make up the difference with higher sales taxes or property taxes, which can hit lower-income households harder because they spend a larger share of their income on goods and housing.

Effective tax rates show the real burden across income groups

An effective tax rate is the percentage of your total income that goes to all taxes combined — federal, state, local, payroll, and capital gains. This number tells you more than a single tax rate does.

According to the Institute on Taxation and Economic Policy, the effective tax rate for the bottom 20 percent of earners is around 11 percent when you include all taxes. For the middle 20 percent, it is around 14 percent. For the top 1 percent, it is around 23 percent. This means the wealthy do pay a higher percentage overall, but the difference is smaller than federal income tax rates alone suggest.

The effective rate varies by state. In states with high income taxes and high property taxes, middle-income households may pay 15 to 18 percent of their income in total taxes. In states with no income tax but high sales taxes, the burden may be distributed differently but often still falls heavily on lower-income households.

Corporate taxes and who ultimately bears the cost

Corporations pay federal income tax on profits at a flat rate of 21 percent. The question of who actually bears this cost — the corporation, its shareholders, its workers, or its customers — is debated by economists and depends on how the corporation responds.

If a corporation pays less tax, it might return the money to shareholders as dividends or stock buybacks, benefiting wealthy investors. It might raise wages, benefiting workers. It might lower prices, benefiting customers. Or it might do some combination. The actual effect depends on market conditions and corporate decisions, not on the tax rate itself.

Corporate tax revenue has declined as a share of total federal revenue over the past few decades, while individual income tax and payroll tax revenue have grown. This shift means a larger share of the federal tax burden now falls on individual workers and earners rather than on corporations.

Frequently Asked Questions

Do the wealthy pay their fair share of taxes?

This depends on what you think is fair. The top 1 percent pays about 40 percent of federal income tax on about 20 percent of total income. Whether that is proportional, too much, or too little is a question of values, not facts. Different people reach different conclusions based on different beliefs about how government should be funded.

Why do some billionaires pay less tax than middle-class people?

When a billionaire's income comes mostly from investments rather than wages, and when they use legal deductions and strategies to reduce taxable income, their effective tax rate can be lower than someone earning $100,000 in wages. This is possible because capital gains are taxed at lower rates than ordinary income, and because deductions and credits can reduce taxable income significantly.

What is the difference between marginal tax rate and effective tax rate?

Your marginal rate is the tax rate on your last dollar earned — the highest bracket you fall into. Your effective rate is your total tax divided by your total income. Someone in the 37 percent bracket does not pay 37 percent on all their income, only on the portion that falls in that bracket. Their effective rate is usually much lower.

Do lower-income people pay any federal income tax?

Many do not. The standard deduction — the amount you can earn before owing federal income tax — is $13,850 for single filers in 2024. People earning less than that owe no federal income tax. However, they still pay payroll taxes and sales taxes, so they do pay other forms of tax.

How do tax deductions and credits affect who pays the most?

Deductions reduce your taxable income, and credits reduce your tax bill directly. Some credits, like the Earned Income Tax Credit, benefit lower-income workers. Others, like deductions for mortgage interest and charitable giving, tend to benefit higher-income households because they are more likely to itemize deductions and have large charitable gifts or mortgages.