Which Income Group Pays the Most Taxes?

Determining which income group pays the most in taxes is a complex question. The answer depends on whether “most” is measured by the total dollar amount contributed to government revenues or by the percentage of income a group pays. Each perspective offers a different insight into the functioning of the U.S. tax system. This analysis will explore these measurements, focusing primarily on the federal tax system, to provide a clear picture of how the tax burden is distributed across different income levels in the United States.

The Primary Sources of Federal Tax Revenue

The U.S. government funds its operations through several revenue streams, which amounted to approximately $4.9 trillion in fiscal year 2024. The largest of these is the individual income tax, accounting for about 49% of all federal revenue. This tax is levied on personal income, including wages, salaries, and investment returns.

A significant portion of federal revenue, around 35%, comes from payroll taxes mandated under the Federal Insurance Contributions Act (FICA) to fund Social Security and Medicare. FICA taxes are split between employees and employers, with each paying 6.2% for Social Security on earnings up to an annual limit ($182,400 in 2025) and 1.45% for Medicare with no wage cap.

Corporate income taxes on company profits contribute about 11% of total revenue at a flat rate of 21%. Finally, about 5% of revenue is derived from other sources, including federal excise taxes on goods like gasoline and tobacco, estate taxes, and customs duties.

Distribution of the Federal Tax Burden by Income Group

To analyze who pays the most in federal taxes, data is often grouped by income quintiles, which divide the population into five equal groups. When measured by the total share of federal taxes paid, higher-income groups contribute a disproportionately large amount of revenue.

Data from the Congressional Budget Office (CBO) shows the top 20% of households by income paid nearly 70% of all federal taxes in 2019. This concentration is more pronounced at the top, where the highest-earning 1% of households alone paid about 25% of all federal taxes.

Conversely, the bottom 80% of households contributed approximately 31% of total federal taxes combined. These figures, which include all major federal taxes, illustrate that the bulk of revenue in absolute dollars is paid by the highest-income households. The progressive structure of the individual income tax is a primary driver of this outcome, as tax rates increase with income.

Analyzing Average Federal Tax Rates Across Income Levels

While higher-income groups pay the largest share of total tax dollars, another way to measure the tax burden is by looking at the average federal tax rate. This rate, also known as the effective tax rate, is calculated by dividing the total federal taxes a group pays by its total income. This metric reveals what percentage of a group’s income is paid in taxes.

The overall U.S. federal tax system is progressive, meaning that average tax rates rise as income increases. CBO data from 2019 shows the lowest quintile had an average federal tax rate of 0.5%, while the middle three quintiles faced rates between 12% and 16%. In contrast, the highest quintile had an average rate of 25%, and the top 1% of earners faced an average rate of about 30%.

This progression is driven by the individual income tax, but other federal taxes have different effects. Payroll taxes are somewhat regressive because the Social Security portion stops applying above a certain income threshold. Some low-income households also experience a negative average income tax rate due to refundable tax credits. When all federal taxes are combined, the system remains progressive, showing that higher-income households pay a larger percentage of their income to the federal government.

How Tax Policies Shape the Distribution

The distribution of the federal tax burden is the direct result of specific tax policies, such as tax credits and deductions. These provisions reduce the amount of tax a household owes and are targeted to benefit different income groups.

Tax credits are particularly impactful for low- and middle-income families. Refundable credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) are designed to provide financial assistance. The EITC, for instance, is a subsidy for low-income workers that can result in a net payment to the household, creating a negative income tax rate. For the 2025 tax year, the maximum EITC can be as high as $8,158 for a family with three or more children.

On the other hand, tax deductions tend to provide more benefits to higher-income households. Deductions reduce a taxpayer’s taxable income, and their value is proportional to the taxpayer’s marginal tax rate. For instance, deductions for mortgage interest and charitable contributions are more likely to be claimed by higher-income individuals who itemize. Because these taxpayers are in higher tax brackets, the dollar value of these deductions is greater for them. The result is a complex system where different policies interact to produce the progressive distribution of the tax burden.

The Impact of State and Local Taxes

An analysis focused solely on federal taxes provides an incomplete picture of the total tax burden. State and local taxes, which fund services like schools and roads, constitute a significant portion of what households pay and can alter the overall distribution of the tax burden.

The primary revenue sources for state and local governments are sales taxes, property taxes, and state-level income taxes. Unlike the federal system, state and local tax systems are often regressive, imposing a heavier burden, as a percentage of income, on lower-income households. This is due to a heavy reliance on sales and excise taxes, as lower-income families spend a larger portion of their income on goods and services.

Property taxes can also be regressive. While homeowners pay this tax directly, landlords often pass the cost on to tenants through higher rents. Because housing costs make up a larger share of a low-income family’s budget, the embedded property tax represents a higher percentage of their income.

When all taxes are combined, the overall U.S. tax system remains progressive, but less so than the federal system alone. According to the Institute on Taxation and Economic Policy (ITEP), in 41 states, the top 1% of households pay a lower effective state and local tax rate than any other income group. This regressive nature of many state and local tax systems counteracts some of the progressivity in the federal tax code.