4 ms·

How high is the US income tax? And is it progressive?

smitty1110 5y ago
Top end, which kicks in at a bit shy of $520k is 37%. Top end Long-term Capital Gains max rate is 20% at about $440k. These are numbers for individuals, they differ for married couples and households filing collectively.
- not2b 5y ago
  The very wealthy can usually avoid paying anywhere near these amounts, though. Corporate owners can pay themselves a nominal salary and let the corporation grow. Capital gains are only due when stock is sold. So they avoid selling and borrow using their stock as collateral.
- Trias11 5y ago
  I think you're underestimating. There are Federal AND state taxes and that math quickly adds up.
  - deleted 5y ago
    [deleted]
  - echelon 5y ago
    Not all states have income taxes. State income taxes are usually pretty low. Texas and Florida don't have an income tax. Georgia ranges from 1% to 5.5%. California goes all the way up to 13%.
- G3rn0ti 5y ago
  At least that’s lower than in many European countries. In case of the income tax at least.
  - carl_dr 5y ago
    (Helped by Google …) In NYC, earning about $100k a year, the effective rate is ~28% tax (ie, you pay $28k tax a year), including federal (~15%) and state (~5%), social security etc. In the UK, for £100k, it looks like it’s 27.4%. So very similar levels.
    - midasuni 5y ago
      $100k is £71k, you’d pay £21k in taxes on that which is 30%
      - Plyphon_ 5y ago
        Well our UK tax bands are marginal tax rates. So you pay zero on the first £12,570 of earnings. Basic rate of 20% from £12,571 to £50,270 of earnings. And then 40% on £50,271 onwards. (We have additional rate over £150,000 of 45%). It's important to remember you don't pay a flat %age on your income. It's worked out as a precentage of income you earn inside the thresholds
        mprev 5y ago
        Don’t forget that you start to lose the personal allowance over £100k so there’s a point at which the marginal tax rate is around 60%.
        midasuni 5y ago
        Yup. That level is at 50k if you have two kids. Even higher with three kids.
        midasuni 5y ago
        That’s all irrelevant. I was quoting actual tax paid, not marginal rates. You also forget a major part of tax levied on workers but not on owners - national insurance.
    - karlmrax 5y ago
      > In NYC, earning about $100k a year, the effective rate is ~28% tax That doesn't include VAT (or whatever it's called in America), tariffs, excise duties though, does it? It'd be curious to see a comparison between countries that would cover all those things (like how much you earn, and how much you actually pay for some average set of goods).
iohead 5y ago
At the time of this writing (mid 2021), US tax breakdown for the highest income bracket in California is as follows. # Federal * Long Term Capital Gains Tax = 20% * Short Term Capital Gains Tax = 37% * Earned Income / Ordinary Income Tax = 37% * Net Investment Income Tax = 3.8% * Medicare Payroll Tax (W-2 Wages) = 1.45% * Additional Medicare Tax (W-2 Wages) = 0.9% # State (California has the highest rate) * CA State Income Tax = 12.3% * CA Mental Health Tax = 1% In summary, if you make "a lot" of money in California, you'd be paying combined Federal/State taxes of at least 37.1% and as much as ~55%, depending on the type of income. Deductions and credits mostly phase out at said income levels. In particular, Trump's doing away with the State and Local Tax (SALT) deduction meant that now you also pay both Federal and State taxes on the same income as if the other tax (Federal or State) did not exist.
- jpmattia 5y ago
  You left out FICA, but it's also worth noting that the W-2 taxes have a maximum for the year, so the income bracket of 37% does not overlap with W-2 taxes.
  - iohead 5y ago
    Sure, but that's why you'll see that my summary totals aren't just a summation of all the enumerated percentages. The point is to illustrate what the total tax range is at the highest income levels.

Top end, which kicks in at a bit shy of $520k is 37%. Top end Long-term Capital Gains max rate is 20% at about $440k. These are numbers for individuals, they differ for married couples and households filing collectively.

not2b 5y ago
The very wealthy can usually avoid paying anywhere near these amounts, though. Corporate owners can pay themselves a nominal salary and let the corporation grow. Capital gains are only due when stock is sold. So they avoid selling and borrow using their stock as collateral.
Trias11 5y ago
I think you're underestimating. There are Federal AND state taxes and that math quickly adds up.
- deleted 5y ago
  [deleted]
- echelon 5y ago
  Not all states have income taxes. State income taxes are usually pretty low. Texas and Florida don't have an income tax. Georgia ranges from 1% to 5.5%. California goes all the way up to 13%.
G3rn0ti 5y ago
At least that’s lower than in many European countries. In case of the income tax at least.
- carl_dr 5y ago
  (Helped by Google …) In NYC, earning about $100k a year, the effective rate is ~28% tax (ie, you pay $28k tax a year), including federal (~15%) and state (~5%), social security etc. In the UK, for £100k, it looks like it’s 27.4%. So very similar levels.
  - midasuni 5y ago
    $100k is £71k, you’d pay £21k in taxes on that which is 30%
    - Plyphon_ 5y ago
      Well our UK tax bands are marginal tax rates. So you pay zero on the first £12,570 of earnings. Basic rate of 20% from £12,571 to £50,270 of earnings. And then 40% on £50,271 onwards. (We have additional rate over £150,000 of 45%). It's important to remember you don't pay a flat %age on your income. It's worked out as a precentage of income you earn inside the thresholds
      - mprev 5y ago
        Don’t forget that you start to lose the personal allowance over £100k so there’s a point at which the marginal tax rate is around 60%.
        midasuni 5y ago
        Yup. That level is at 50k if you have two kids. Even higher with three kids.
      - midasuni 5y ago
        That’s all irrelevant. I was quoting actual tax paid, not marginal rates. You also forget a major part of tax levied on workers but not on owners - national insurance.
  - karlmrax 5y ago
    > In NYC, earning about $100k a year, the effective rate is ~28% tax That doesn't include VAT (or whatever it's called in America), tariffs, excise duties though, does it? It'd be curious to see a comparison between countries that would cover all those things (like how much you earn, and how much you actually pay for some average set of goods).

iohead 5y ago

At the time of this writing (mid 2021), US tax breakdown for the highest income bracket in California is as follows. # Federal * Long Term Capital Gains Tax = 20% * Short Term Capital Gains Tax = 37% * Earned Income / Ordinary Income Tax = 37% * Net Investment Income Tax = 3.8% * Medicare Payroll Tax (W-2 Wages) = 1.45% * Additional Medicare Tax (W-2 Wages) = 0.9% # State (California has the highest rate) * CA State Income Tax = 12.3% * CA Mental Health Tax = 1% In summary, if you make "a lot" of money in California, you'd be paying combined Federal/State taxes of at least 37.1% and as much as ~55%, depending on the type of income. Deductions and credits mostly phase out at said income levels. In particular, Trump's doing away with the State and Local Tax (SALT) deduction meant that now you also pay both Federal and State taxes on the same income as if the other tax (Federal or State) did not exist.

jpmattia 5y ago
You left out FICA, but it's also worth noting that the W-2 taxes have a maximum for the year, so the income bracket of 37% does not overlap with W-2 taxes.
- iohead 5y ago
  Sure, but that's why you'll see that my summary totals aren't just a summation of all the enumerated percentages. The point is to illustrate what the total tax range is at the highest income levels.