In 2022, the most recent year with complete IRS data, the top 1% of American taxpayers paid roughly 40% of all federal individual income taxes while earning about 22% of the country’s adjusted gross income.1Internal Revenue Service. Statistics of Income – 2022 Individual Income Tax Returns Their average effective federal income tax rate came in near 26% of AGI. The share moves each year with stock market returns, realized capital gains, and legislative changes, but the basic shape is stable: a small slice of filers pays a disproportionately large share of the income tax, at rates well below the 37% top statutory bracket.
Who Counts as the Top 1%
For tax year 2022, a filer needed adjusted gross income of at least $663,164 to land in the top 1%. That threshold isn’t fixed. It moves with national income growth and tends to rise in years with strong market performance.
Adjusted gross income is total income from wages, business profits, investment gains, and most other sources, minus a short list of above-the-line deductions like retirement contributions and student loan interest. What AGI leaves out matters at the top: tax-exempt municipal bond interest, unrealized investment gains, and certain employer-provided benefits don’t appear on the line. High earners rely on those streams heavily, so AGI understates the true economic resources of people at the top of the distribution.
Why the Effective Rate Is Around 26%, Not 37%
The effective federal income tax rate divides total income tax liability by AGI. For the top 1% in 2022, that worked out to about 26%.1Internal Revenue Service. Statistics of Income – 2022 Individual Income Tax Returns The bottom 50% of filers, by comparison, paid an average effective rate in the low single digits.
Two features of the code keep the top 1% well below the 37% headline rate. First, that 37% bracket only applies to ordinary income above $640,600 for single filers in 2026.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Everything earned below that threshold is taxed at lower graduated rates, so even a filer with $2 million in wages pays the lower rates on most of it.
Second, and more consequential for the very top: investment income is taxed at preferential rates. Long-term capital gains and qualified dividends face a maximum federal rate of 20%, not 37%.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses Since investment profits make up a large share of income at the top, that gap pulls the effective rate down considerably.
On top of the 20% capital gains rate, high earners pay a 3.8% Net Investment Income Tax on the lesser of net investment income or the amount by which modified AGI exceeds $200,000 for single filers ($250,000 for joint filers).4Internal Revenue Service. Net Investment Income Tax That surtax covers interest, dividends, capital gains, rental income, and royalties. Combined with the 20% long-term rate, the federal ceiling on most investment profits is 23.8%. That ceiling is the main reason the wealthiest filers rarely approach a 37% effective rate.
Many top earners also run businesses structured as pass-throughs such as S corporations or partnerships. Under Section 199A, owners of qualifying businesses can deduct up to 20% of qualified business income before calculating tax. The One Big Beautiful Bill, signed in July 2025, made the deduction permanent starting with the 2026 tax year.5Internal Revenue Service. Revenue Procedure 2025-32 For 2026, the deduction begins to phase out for single filers with taxable income above $201,750 ($403,500 for joint filers) in certain service-based industries but remains fully available for other business types regardless of income. Effectively, the top marginal rate on qualifying pass-through income drops from 37% to about 29.6%.
The Fuller Picture With Payroll and Corporate Taxes
The income tax rate alone understates what the top 1% contributes to federal revenue. The Congressional Budget Office tracks a broader total federal tax rate that adds payroll taxes, excise taxes, and the share of corporate income tax that economists assign to capital owners.
Payroll taxes shift the numbers in mixed directions at the top. Social Security taxes apply at 6.2% each for employer and employee on wages up to $184,500 in 2026.6Social Security Administration. Contribution and Benefit Base Anything above that cap escapes Social Security tax, which is why payroll taxes are described as regressive at the top. Medicare taxes are uncapped: the standard 1.45% applies to all wages, and an additional 0.9% surtax kicks in on wages above $200,000 for single filers.7Internal Revenue Service. Topic No. 560, Additional Medicare Tax
Corporate tax incidence is the most debated piece. When a corporation pays federal income tax, the cost lands somewhere: on shareholders through lower returns, on workers through lower wages, or on consumers through higher prices. Economists generally agree that capital owners bear the largest share, and since the top 1% holds a disproportionate amount of corporate stock, the CBO assigns a substantial portion of corporate tax to this group. That allocation raises their total effective rate beyond what income and payroll taxes alone would produce.
Using its comprehensive income measure, the CBO has historically placed the total effective federal tax rate for the top 1% somewhere in the range of 25% to 33%, depending on the year. Big capital gains years push the income tax piece higher; the payroll tax piece matters less at the very top because Social Security taxes are capped.
How the Top 1% Compares to Everyone Else
The federal system is progressive: effective rates rise with income. The 2022 numbers make the concentration plain. The top 1% earned 22.4% of AGI and paid 40.4% of federal individual income taxes.1Internal Revenue Service. Statistics of Income – 2022 Individual Income Tax Returns Paying nearly double their income share is the clearest single measure of how the income tax leans on high earners.
Compared across the spectrum, households in the bottom 20% face a total federal effective rate in the low single digits, and often a negative rate once refundable credits like the Earned Income Tax Credit are counted. The middle 20% typically pays a total federal rate in the mid-teens once income tax, payroll taxes, and the CBO’s corporate allocation are combined. Filers between the 90th and 99th percentile land in the low-to-mid twenties. The steepest jump happens between the middle of the distribution and the top quintile.
Rates vary sharply inside the top 1%, too. A filer earning $700,000 in wages pays a higher effective rate than someone earning $10 million mostly from long-term capital gains, because wages face both higher marginal income tax rates and uncapped Medicare taxes. Joint Committee on Taxation analysis presented at a 2024 Senate Finance Committee hearing put the top 0.1%’s federal tax rate around 28.7% on a cash-income basis. Higher than the top 1% average, still well short of 37%.
What the Share-Paid Number Doesn’t Capture
The share and rate figures above measure taxes on income that shows up on tax returns. Several dynamics at the very top don’t.
Unrealized capital gains are the biggest gap. When stocks, real estate, or a private business appreciate, no tax is owed until the asset is sold. A portfolio that grows by $500 million in a year generates zero capital gains tax if nothing is sold. This is the pattern sometimes called “buy, borrow, die”: hold appreciating assets, borrow against them for spending (loan proceeds aren’t taxable income), and at death, heirs receive a stepped-up cost basis that wipes the unrealized gains from the tax base. Proposals to tax unrealized gains at the top have been introduced in Congress; none have been enacted as of 2026.
Estate taxes apply to the wealthiest slice. The federal estate tax exemption for 2026 is $15 million per individual, so a married couple can pass $30 million tax-free.8Internal Revenue Service. What’s New – Estate and Gift Tax Estates above the threshold face a top rate of 40%. Very few estates reach that point each year, but for those that do, the tax is substantial and doesn’t appear in annual effective rate figures.
Income composition ultimately drives the top 1%’s effective rate more than any single provision. Two filers with identical total income can owe very different amounts depending on whether that income arrives as wages, business profits, dividends, or long-term gains. Preferential rates on investment income, the QBI deduction for pass-through businesses, and control over when to realize gains give high earners tools to manage their effective rate that wage earners don’t have. That, more than the statutory bracket, explains why 40% of the federal income tax comes from 1% of filers at an average rate closer to 26% than 37%.