What Are Income Tax Rates?

Updated for Tax Year 2019


OVERVIEW

Confused by what percentage of your income goes to taxes and why it does not match the rate in the tax table? Here are the basics on how income tax rates work.


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Introduction

An income tax rate is simply the percentage of your income that a government takes in taxes. In the United States, a single income tax rate doesn't usually apply to your entire income, but rather various rates will apply to different portions of your "taxable income"—whatever is left over after you've claimed all the deductions and exemptions for which you are eligible. The number of different tax rates and the income levels at which they apply vary widely.

Progressive tax rates

The federal government and most states use a system of "progressive" income tax rates. This means that as your taxable income increases, so does your maximum tax rate. In the 2019 tax year, for example, single people with a taxable income of $9,700 or less pay federal income tax at the tax rate of 10 percent. However, as taxable income increases, you are subject to tax rates of 12, 22, 24, 32, 35, or 37 percent with the higher rates only applying to the higher portions of your income. People generally refer to the range of taxable income for each tax rate as a “tax bracket.”

How tax brackets work

Progressive tax rates are "marginal," meaning that each rate applies to specific portions of your taxable income within a specified range, or tax bracket. For example, if you are single and have taxable income of $175,000 in 2019, then you are in the 32 percent "bracket."

However, you will not pay 32 percent on all taxable income. Instead, you pay 10 percent on everything up to $9,700, then 12 percent on the excess up to $39,475, 22 percent on taxable income between $39,475 and $84,200, 24 percent on the amount over $84,200 up to $160,725, 32 percent on the amount over $160,725 up to $204,100, 35 percent on the amount over $204,100 up to $510,300, and 37 percent on the rest.

State income tax rates

Although a majority of states impose income taxes in the same way the federal government does, some apply a single income tax rate to everyone, regardless of the amount of taxable income you earn. This is called a "flat tax."

History of income tax rates

Tax rates rise and fall all the time. In 1913, right after the 16th Amendment to the Constitution legalized a direct tax on individual incomes, the marginal federal rates ranged from 1 to 7 percent. To pay for massive military spending during World War II, the top tax rate rose as high as 94 percent in 1945. The top rate remained above 90 percent until the 1960s when it dropped to 70 percent. However, as of 2019, the top rate is a more manageable 37 percent. The number of tax brackets has varied significantly as well. In 1918 there were 56; whereas, in the late 1980s there were only two.

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