The United States uses a layered tax system in which the federal government, the states, and local governments each impose their own taxes independently. At the federal level, the individual income tax is progressive, with seven marginal brackets running from 10 percent to 37 percent for 2026. Alongside it sit payroll taxes for Social Security and Medicare, a flat corporate income tax, separate rates for long-term capital gains, excise taxes built into the price of specific goods, and an estate tax on large inheritances. States and localities then add their own income, sales, and property taxes on top. Most Americans deal with several of these in a single year.
How the Progressive Federal Income Tax Works
The federal income tax is marginal, not flat. Each slice of your income is taxed at the rate for the bracket it falls into, so touching a higher bracket doesn’t retroactively raise the rate on the income below it. A single filer earning $60,000 in 2026 pays 10 percent on the first $12,400, 12 percent on the portion up to $50,400, and 22 percent only on the amount above $50,400. The effective rate ends up well under the top bracket the income reaches.
For 2026, the seven brackets for single filers are:
- 10 percent on income up to $12,400
- 12 percent from $12,401 to $50,400
- 22 percent from $50,401 to $105,700
- 24 percent from $105,701 to $201,775
- 32 percent from $201,776 to $256,225
- 35 percent from $256,226 to $640,600
- 37 percent on income over $640,600
Married couples filing jointly get wider brackets. Their 10 percent band runs up to $24,800, and the top 37 percent rate applies only above $768,700.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill The dollar thresholds adjust for inflation each year even when the rate percentages don’t move.
The current rate structure came from the Tax Cuts and Jobs Act of 2017 and was set to expire after 2025. The One, Big, Beautiful Bill Act, signed into law on July 4, 2025, extended those lower rates into 2026 and beyond.2Internal Revenue Service. One, Big, Beautiful Bill Provisions – Individuals and Workers
Before the brackets touch your income, deductions come off the top. Most filers claim the standard deduction, which for 2026 is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill Filers with larger qualifying expenses can itemize instead. Credits then reduce the tax itself dollar for dollar; some, like the Earned Income Tax Credit, are refundable and can generate a refund even when no tax is owed.3Internal Revenue Service. Tax Credits for Individuals: What They Mean and How They Can Help Refunds
Payroll Taxes on Wages
For most workers, the second-largest federal tax is payroll tax, which funds Social Security and Medicare. Employees see it on their pay stubs as FICA, split into two components.
The Social Security piece is 6.2 percent of wages from the employee, matched by 6.2 percent from the employer, for a combined 12.4 percent. In 2026 it applies only to the first $184,500 in wages. Earnings above that cap are not subject to Social Security tax.4Social Security Administration. Contribution and Benefit Base
Medicare has no wage cap. The base rate is 1.45 percent from the employee and 1.45 percent from the employer, for a combined 2.9 percent on every dollar earned. Individuals earning more than $200,000, or married couples filing jointly earning more than $250,000, pay an additional 0.9 percent Medicare surtax on wages above those thresholds. Employers do not match that extra 0.9 percent.5Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
If you’re self-employed as a freelancer, independent contractor, or sole proprietor, you pay both halves yourself: 12.4 percent Social Security up to the $184,500 wage base plus 2.9 percent Medicare, totaling 15.3 percent of net self-employment income.6Social Security Administration. FICA and SECA Tax Rates – Actuarial Services You can deduct half of your self-employment tax when calculating adjusted gross income. The 0.9 percent Medicare surtax applies at the same income thresholds.
How Businesses Are Taxed
Business taxation splits along entity lines. C-corporations pay a flat 21 percent federal tax on net profits, a rate set by the Tax Cuts and Jobs Act that replaced a graduated system topping out at 35 percent.7Office of the Law Revision Counsel. 26 USC 11 – Tax Imposed Corporations file Form 1120, generally due by the 15th day of the fourth month after their tax year ends.8Internal Revenue Service. Instructions for Form 1120 U.S. Corporation Income Tax Return
Corporate profits then face a second layer of tax when distributed. A C-corporation paying out its after-tax earnings as dividends leaves shareholders owing tax again at their individual capital gains rates, plus the 3.8 percent Net Investment Income Tax where it applies. A corporation earning $1 million pays $210,000 in corporate tax; if it distributes the remaining $790,000 as qualified dividends, high-income shareholders can owe up to 20 percent plus the 3.8 percent surtax on those dividends. The combined federal bite can reach roughly 40 percent of original corporate profits.
Most American businesses aren’t C-corporations. Sole proprietorships, partnerships, S-corporations, and most LLCs are pass-through entities: the business itself pays no income tax, and profits flow through to the owners’ personal returns to be taxed at individual rates. That avoids the double layer but exposes business income to rates as high as 37 percent. To offset that, pass-through owners can claim the qualified business income deduction under Section 199A, made permanent by the One, Big, Beautiful Bill after having been scheduled to expire at the end of 2025.9Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income Starting in 2026, the deduction rises from 20 percent to 23 percent of qualified business income, subject to limits based on income, wages paid, and business type.
Taxes on Investment Gains and Estates
Profits from selling investments held longer than a year get their own lower rate schedule. For 2026, long-term capital gains rates for single filers are 0 percent on taxable income up to $49,450, 15 percent from $49,451 to $545,500, and 20 percent above $545,500. Married couples filing jointly hit the 15 percent rate at $98,900 and the 20 percent rate at $613,700. Short-term gains on assets held a year or less are taxed as ordinary income at your regular bracket rates.
Higher earners also owe the 3.8 percent Net Investment Income Tax on investment income once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.10Internal Revenue Service. Topic No. 559, Net Investment Income Tax The surtax reaches interest, dividends, capital gains, rental income, and royalties. Stacked on the 20 percent top capital gains rate, it produces an effective 23.8 percent federal rate on long-term gains at the top.
At death, large estates face the federal estate tax. For 2026, the first $15,000,000 of an estate’s value is exempt, up sharply from the 2025 exemption of $13,990,000. The increase came from the One, Big, Beautiful Bill rather than routine inflation adjustments.11Internal Revenue Service. What’s New – Estate and Gift Tax Married couples can effectively shelter up to $30,000,000 combined. Amounts above the exemption face a top rate of 40 percent. The gift tax runs alongside it: in 2026, you can give up to $19,000 per recipient per year without filing a gift tax return, and larger gifts count against your lifetime estate tax exemption.
Excise Taxes Built Into Prices
Excise taxes target specific goods and activities rather than income, and you pay them embedded in the price at the register. Manufacturers, importers, or retailers are legally responsible for sending the money to the government, but the cost passes through to consumers.12Office of the Law Revision Counsel. 26 USC Subtitle D – Miscellaneous Excise Taxes
The federal gasoline tax is 18.4 cents per gallon, directed to the Highway Trust Fund, and hasn’t changed since 1993.13U.S. Energy Information Administration. How Much Tax Do We Pay on a Gallon of Gasoline and on a Gallon of Diesel Fuel The federal cigarette tax is $1.01 per pack, set at that level since 2009.14Alcohol and Tobacco Tax and Trade Bureau. Federal Excise Tax Increase and Related Provisions Airline tickets carry a 7.5 percent excise tax on the fare. Other excise taxes reach heavy trucks, indoor tanning, wagering, and certain insurance policies issued by foreign companies.
The State and Local Layer
State and local governments run their own tax systems independent of the federal one, and the variation is enormous.
State Income Taxes
Some states mirror the federal progressive model with multiple brackets. Others impose a single flat rate. A handful have no state income tax at all. A worker in one state can face a top marginal rate above 10 percent while someone doing the same job across a state line pays zero.
Sales Taxes
Most states impose a general sales tax on retail purchases, with statewide rates running from zero to over 7 percent. Local add-ons can push the combined rate above 10 percent in some areas. Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can also require out-of-state online sellers to collect sales tax once they exceed a threshold in that state, typically $100,000 in annual revenue.
Property Taxes
Local governments, particularly school districts and counties, rely heavily on property taxes assessed on the value of real estate. Average effective rates range from roughly 0.3 percent of a home’s value in the lowest-tax areas to over 2 percent in the highest. Rates are set locally based on budget needs, and reassessments can move a homeowner’s bill significantly from year to year even when the rate itself doesn’t change.
The upshot of this layered design is that geography drives a large share of your total tax burden. Two people earning the same income can end up owing very different amounts once the state and local layers are added to the federal one.