Which Taxpayers Pay the Most Taxes?

The U.S. tax system is generally progressive—the more you earn, the greater the percentage of your income is taxed by the IRS.

In 2019, the top 1%, or taxpayers with an AGI of $546,434, paid $612 billion in income taxes, and paid 38.8% of all federal income taxes. To contrast, the bottom 90% paid $461 billion in income taxes.

However, this doesn't take other types of taxes into account. For example, lower-income taxpayers are impacted more by regressive taxes such as payroll tax and sales tax.

Federal Income Tax Brackets

A single taxpayer who earns $300,000 a year will pay a top tax rate that’s higher than another taxpayer who makes $40,000 a year.

The highest income tax bracket for the 2022 and 2023 tax years is 37%. In both 2022 and 2023, the highest tax bracket for a single taxpayer making $300,000 per year would be 35%, while the highest tax bracket for someone making $40,000 per year would be 12%.

They should each theoretically pay the same amount in taxes on their first $40,000. That means for tax year 2023, each of these taxpayers would pay 10% on their first $11,000, and 12% on the rest of the money up to $40,000. For all income after the first $44,725, the taxpayer making $300,000 a year would pay either 24% or 32% in taxes.

That's a simplified way of putting it, since the actual equation is a bit more complicated. Everyone's situation is different depending on tax credits, deductions, age, health, filing status, and other factors.

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 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, or by itemizing their deductions.

If they claim the standard deduction, their taxable income would drop to $287,050 in 2022 ($300,000-$12,950) and $286,150 in 2023 ($300,000-$13,850). The $40,000-a-year person’s taxable income would drop to $27,050 in 2022, assuming they’re also single and they claim the $12,950 deduction. It would go down to $26,150 in 2023.

Itemized Deductions Favor Wealthier Taxpayers

The six-figure taxpayer can probably bring their taxable income down even more by itemizing deductions.

Taxpayers claimed $190.1 billion in itemized charitable donation deductions in 2019. The taxpayer who earns just $40,000 a year likely would not contribute enough to that number to reasonably itemize deductions. The standard deduction will likely end up being a better deal for you, the less you make.

The same applies to the mortgage interest deduction, which resulted in $185 billion being shaved off taxpayers’ incomes in 2019. As it's becoming increasingly difficult for lower- and middle-income Americans to afford homes, the mortgage interest deduction is becoming a luxury for wealthier Americans.

Property and state taxes accounted for $139 billion in claimed tax deductions in 2019. In general, people who can afford property or real estate are wealthier, as are the people who find it worthwhile to itemize their deductions. As a result, it's likely that the majority of those deductions were given to high-income individuals.

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

Federal Income Tax Paid by Low-Income Taxpayers

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.

Federal Income Tax Paid by Middle-Income Taxpayers

Data from IRS breaks down taxpayers into 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 3.06% of taxes paid that year.

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

Federal Income Tax Paid by High-Income Taxpayers

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

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)