Breakdown of Who Pays the Most—and Least—in Taxes

People who earn $221,000 or more pay more than half of total income taxes

A woman with dreadlocks sits at a kitchen table, doing her income tax on a laptop

NoSystem images / Getty Images

The U.S. tax system is progressive—the more you earn, the greater the percentage of your income is taxed by the IRS. But that’s the black-and-white version of the equation and, in fact, there are many gray areas.

It takes years to compile data from tax returns to determine how much citizens paid and who paid the most and the least. In 2020, the last year for which such data is available, the gross income tax collected from individuals was nearly $1.5 trillion. But who, exactly, is paying all that money? The wealthiest taxpayers are taking the heat. 

Federal Income Tax Brackets

A single taxpayer who earns $300,000 a year will pay a top tax rate that’s significantly higher than another taxpayer who only makes $15,000 a year. Any income the first taxpayer earns over $209,426 is going to be taxed at 35% in 2021 whereas the top tax rate for the second taxpayer in 2021 would be just 12% (assuming both are filing as single taxpayers, not as married taxpayers). For 2022, the top rate of 35% would apply to any income the first taxpayer earns in excess of $215,950 and for the second tax payer any amount over $10,276 would attract the 12% rate.

That’s how a progressive system works, but the actual equation is a bit more complicated than that. Here’s how tax brackets work for single taxpayers in tax years 2021 and 2022 (if you’re filing jointly with your spouse or as a head of household, your tax brackets are slightly different).

Tax Brackets
Income Tax Rate 2021 Income 2022 Income
10% $0 to $9,950 $0 to $10,275
12% $9,951 to $40,525 $10,276 to $41,775
22% $40,526 to $86,375 $41,776 to $89,075
24% $86,376 to $164,925 $89,076 to $170,050
32% $164,926 to $209,425 $170,051 to $215,950
35% $209,426 to $523,600 $215,951 to $539,900
37% $523,601 or more $539,901 or more

Marginal vs. Effective Tax Rates 

Not all of the $300,000-a-year taxpayer’s income is taxed at 35%. The first $10,275 they earn in 2022 would be taxed at only 10%. Income between that threshold and $41,775 would be taxed at 12%, and income of $41,776 up to $89,075 would be subject to a 22% rate. Next, their income up to $170,050 would be taxed at 24%, and their income from $170,051 to $215,950 would be taxed at a rate of 32%. Only that last  $84,050 (i.e., $300,000 - $215,950) would incur a 35% tax rate. 

That 35% is the person’s “marginal” tax rate: the percentage they pay on their top dollar earned. Their “effective” tax rate is the result of dividing the total amount of tax they owe by their adjusted gross income (AGI)—what’s left after making certain above-the-line adjustments to income on your tax return. Your effective tax rate is the share of your income you actually pay in taxes.

The chart below helps to illustrate how much taxpayers are spending depending on their income brackets.

Who Pays The Most Taxes?

The Effect of Credits and Deductions 

Tax credits and deductions must also be taken into consideration because they heavily influence how much of an individual’s income will ultimately be taxed. 

The taxpayer with the $300,000 income can bring that figure down by claiming the standard deduction.

For a single filer, the standard deduction is $12,550 for 2021 and $12,950 for tax year 2022.

So their taxable income would drop to $287,450 in 2021 ($300,000-$12,550) and $287,050 in 2022 ($300,000-$12,950).

The $15,000-a-year person’s taxable income would drop to just $2,450 in 2021, assuming they’re also single and they claim the $12,550 standard deduction, while their 2022 taxable income after a $12,950 deduction would be only $2,050. 

The six-figure taxpayer might potentially bring their taxable income down even more by itemizing instead. According to the most recent IRS data available, Taxpayers claimed $190.1 billion in itemized charitable donation deductions in 2019. The taxpayer who earns just $15,000 a year likely would not contribute much to that number. The same applies to the mortgage interest deduction, which resulted in $185.0 billion being shaved off taxpayers’ incomes in 2019. Low-income individuals generally don’t pay enough interest on mortgages to give them a sizable tax deduction. Property and state taxes accounted for  $139.0 billion in claimed tax deductions in 2019, and it stands to reason that the majority of that total can be attributed to people who paid the most in such taxes—high-income individuals.

Basically, the more you earn, the more you spend, and the greater the tax break you’ll get if your spending is on tax-deductible expenses.

The Tax Burden for Low-Income Taxpayers

Only 1.4% of the $1.45 trillion in taxes paid in 2015 was contributed by taxpayers earning less than $30,000, according to the Pew Research Center. 

According to the IRS, $1.6 trillion was collected in total income taxes in 2019, but those in the lower half of the AGI spectrum reported lower incomes. It should also be noted that many taxpayers in this income group received income from the government in the form of those refundable tax credits—the IRS paid out about $62 million in earned income tax credits in 2020 (based on 2019 returns). The average payment to qualifying taxpayers was $2,461.

The Tax Burden for Middle-Income Filers

Data from IRS breaks down taxpayers into just two groups: the top 50% of earners and the bottom 50%. In 2019, the top 50% accounted for more than 96% of the income taxes paid while the lower 50% demographic contributed just 3.06% of taxes paid that year.

The bottom half of taxpayers paid an effective tax rate of 3.54%. These were taxpayers with AGIs below taxpayers with AGI below $44,269.

The Tax Burden for High-Income Taxpayers

Wealthy individuals do indeed pay more in taxes than low-income or even middle-income individuals. It's just basic math. In 2019, the top 1% income earners paid 38.77% of total income taxes paid that year.

Even if the tax system were not progressive and everyone paid the same percentage of their incomes, 15% of $30,000 is a great deal less than 15% of $300,000. But we do have a progressive system, so high-income individuals pay higher effective tax rates, even after all those tax credits and deductions are taken into consideration. Those deductions won’t reduce $300,000 to $30,000.

According to the IRS, those with AGIs between $2 million and $5 million paid a 27.5% effective tax rate in 2019, although the effective rate dropped to 24.9% for the super-wealthy with AGIs of $10 million or more.

Frequently Asked Questions (FAQs)

Why Is the Federal Income Tax a Progressive Tax?

A progressive tax system is designed to distribute the tax burden more heavily toward those who have more income. Its supporters reason that taxpayers with higher wages have greater means to support government services, and it's meant to support a thriving middle class. Detractors argue that this discourages people from earning more since they will have to pay a higher tax rate if they do.

How Do I Calculate My Marginal Tax Rate?

To calculate your marginal tax rate, you will need to look at the tax bracket table for the current year (see the 2022 table). First, calculate your adjusted gross income (AGI) by subtracting the standard deduction or itemized deductions and any other allowable above-the-line deductions from your total income. Then multiply each portion of your AGI by the tax rate for each income level and add the totals for your total income tax obligation.

Article Sources