What Is the Ordinary Income Tax Rate?
Explore how the U.S. progressive tax system works, applying different rates to portions of your income to determine your overall tax obligation.
The ordinary income tax rate is the set of rates applied to most types of income an individual or entity earns. The United States uses a progressive system, meaning that as income increases, the tax rate also increases. This structure applies to a wide array of earnings not designated for special tax treatment, such as long-term capital gains.
Sources of Ordinary Income
Ordinary income includes most forms of money you earn throughout the year. The most common source is compensation from an employer, such as wages, salaries, tips, commissions, and bonuses. This income is reported on a Form W-2.
Ordinary income also includes earnings from self-employment or business activities. If you operate a business as a sole proprietorship, partnership, or S corporation, the net profits are considered ordinary income. This also applies to income earned by freelancers and independent contractors.
Certain investment returns are also classified as ordinary income. Interest from bank accounts, certificates of deposit, and most bonds is taxed at ordinary rates. Dividends that are not “qualified dividends” and short-term capital gains from selling an asset held for one year or less are also subject to ordinary income tax rates. In contrast, long-term capital gains and qualified dividends are taxed at lower rates.
Federal Ordinary Income Tax Brackets
The federal government taxes ordinary income using a system of tax brackets. For the 2024 tax year, there are seven tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Your filing status, such as Single or Married Filing Jointly, determines the income thresholds for each bracket.
This is a marginal tax system, meaning you do not pay your highest tax rate on your entire income. Instead, you pay the rate for each bracket only on the portion of your income that falls within that range. For example, a single filer pays 10% on their first $11,600 of taxable income, then 12% on income from $11,601 to $47,150. This structure prevents a small raise from pushing all of your income into a higher tax bracket.
The 2024 income brackets for a Single filer are:
- 10% on income up to $11,600
- 12% on income from $11,601 to $47,150
- 22% on income from $47,151 to $100,525
- 24% on income from $100,526 to $191,950
- 32% on income from $191,951 to $243,725
- 35% on income from $243,726 to $609,350
- 37% on income over $609,350
For those Married Filing Jointly, the 2024 brackets are:
- 10% on income up to $23,200
- 12% on income from $23,201 to $94,300
- 22% on income from $94,301 to $201,050
- 24% on income from $201,051 to $383,900
- 32% on income from $383,901 to $487,450
- 35% on income from $487,451 to $731,200
- 37% on income over $731,200
These brackets are adjusted annually by the IRS for inflation.
Calculating Your Tax Liability
To calculate your tax bill, you must first determine your taxable income. You start with your gross income and subtract certain “above-the-line” deductions, like contributions to a traditional IRA or student loan interest, to find your Adjusted Gross Income (AGI).
From your AGI, you subtract either the standard deduction or itemized deductions. The standard deduction is a fixed amount based on your filing status; for 2024, it is $14,600 for a single individual. Itemized deductions, reported on Schedule A of Form 1040, include expenses like mortgage interest and charitable contributions, and you should itemize if these deductions exceed your standard deduction.
After subtracting your deduction from AGI, you arrive at your taxable income. This figure is used to calculate your tax liability based on the marginal tax brackets. For example, consider a single filer with a taxable income of $50,000 in 2024.
The calculation is performed in tiers. The first $11,600 is taxed at 10% ($1,160). The next portion of income, from $11,601 to $47,150, is taxed at 12% ($4,266). The remaining income, from $47,151 to $50,000, falls into the 22% bracket and is taxed at that rate ($627). The total federal income tax liability is the sum of these amounts: $1,160 + $4,266 + $627 = $6,053.