What Percentage of Income Goes to Taxes? Average Tax Burden Explained
Start with a number that surprises most people: according to the Tax Foundation, Americans collectively pay more in taxes each year than they spend on food, clothing, and housing combined. The question "what percentage of my income goes to taxes?" sounds simple but depends on five different tax layers — federal income tax, payroll taxes, state income tax, property tax, and sales and excise taxes. Add them up and the average American household sends between 24% and 34% of its total income to federal, state, and local governments, depending on income level, location, and how they earn their money.
Key Takeaways
- • The average American earning $60,000 pays roughly 22–26% of gross income in combined federal, state, and local taxes — not the 37% marginal rate often cited.
- • Payroll taxes (FICA) consume 7.65% of wages for employees and 15.3% for the self-employed — often more than federal income tax for middle-income workers.
- • State and local tax burdens range from 4.9% (Alaska) to over 13% (Hawaii), creating a gap of more than 8 percentage points depending on where you live.
- • The top 1% of income earners pay an effective federal income tax rate of approximately 26%, according to Tax Foundation data — but their total tax burden including payroll and state taxes exceeds 30%.
- • Self-employed individuals pay 7.65% more in FICA taxes than W-2 employees on the same income — a hidden cost that often surprises first-time freelancers.
The Five Layers of American Taxation
The US tax system operates on multiple, overlapping levels. Unlike most countries that have a single value-added tax (VAT), the United States combines seven distinct types of taxes that apply at different rates to different portions of your income. Understanding each layer separately is the only way to accurately answer what percentage you actually pay.
Layer 1 — Federal income tax. The progressive federal income tax applies to taxable income (gross income minus deductions) at seven rates from 10% to 37%. This is the tax most people think of when they say "income taxes."
Layer 2 — FICA payroll taxes. Social Security (6.2%) and Medicare (1.45%) taxes apply to gross wages up to the Social Security wage base ($176,100 in 2026) and to all wages for Medicare. Employers match these amounts — but economic research by the Congressional Budget Office shows that employer-paid FICA taxes are ultimately borne by workers through lower wages. The CBO treats employer FICA as part of the worker's tax burden in its distributional analyses.
Layer 3 — State income tax. 41 states plus Washington D.C. impose a state income tax, ranging from a flat 3.07% (Pennsylvania) to a graduated top rate of 13.3% (California). Nine states have no state income tax on wages: Alaska, Florida, Nevada, New Hampshire (interest and dividends only), South Dakota, Tennessee, Texas, Washington, and Wyoming.
Layer 4 — Property tax. Property taxes are levied by local governments on real estate and, in some states, personal property (vehicles, boats). The average effective property tax rate in the US is approximately 1.1% of assessed value, though rates range from 0.27% (Hawaii) to 2.23% (New Jersey). Property taxes are deductible on federal Schedule A, subject to the $40,400 SALT cap in 2026.
Layer 5 — Sales and excise taxes. Sales taxes apply to purchases of goods (and increasingly services) in 45 states plus D.C. Average combined state and local sales tax rates range from 0% (Oregon, Montana, New Hampshire, Delaware, Alaska at the state level) to over 10% in some Louisiana parishes. Excise taxes on gasoline, alcohol, tobacco, and airline tickets add additional burden that is difficult to track but real.
Federal Income Tax: Effective Rate vs. Marginal Rate
The most common source of confusion about tax percentages is conflating the marginal rate (the rate on the last dollar of taxable income) with the effective rate (the average rate paid on all income). A single filer earning $100,000 in 2026 is in the 22% marginal bracket — but they do not pay 22% on all $100,000. They pay 10% on the first $11,925, 12% on the next $36,550, and 22% on income from $48,475 to $84,900 (their taxable income after the $16,100 standard deduction, estimated). The result is an effective rate well below 22%.
According to IRS Statistics of Income data and Tax Foundation analysis, here are the approximate effective federal income tax rates by income level for 2025, before credits:
| Income Level (Single) | Marginal Rate | Effective Federal Rate | Federal Tax Owed (Approx.) |
|---|---|---|---|
| $25,000 | 10–12% | ~3.6% | ~$900 |
| $40,000 | 12% | ~7.3% | ~$2,920 |
| $60,000 | 22% | ~11.5% | ~$6,900 |
| $80,000 | 22% | ~14.1% | ~$11,280 |
| $100,000 | 22% | ~16.0% | ~$16,000 |
| $150,000 | 24% | ~19.3% | ~$28,950 |
| $250,000 | 32–35% | ~24.5% | ~$61,250 |
| $500,000+ | 35–37% | ~29–31% | $145,000+ |
These figures use the 2026 standard deduction ($16,100 for single filers) and do not include credits, which can significantly reduce the effective rate — particularly the Child Tax Credit ($2,000 per qualifying child) and the Earned Income Tax Credit (up to $8,046 for a family with three children in 2025). Use our federal income tax calculator to see your precise effective rate including all applicable credits.
FICA Payroll Taxes: The Hidden 15.3%
For most middle-income Americans, payroll taxes consume more of their income than federal income tax. According to Congressional Budget Office distributional analysis, workers earning $40,000–$75,000 pay more in combined FICA taxes than in federal income taxes in most years. Yet because FICA is withheld automatically and labeled on pay stubs as "Social Security" and "Medicare" rather than "tax," it often does not register psychologically as part of the tax burden.
The 2026 FICA rates:
| Tax | Employee Rate | Employer Rate | Wage Base |
|---|---|---|---|
| Social Security | 6.2% | 6.2% | $176,100 |
| Medicare | 1.45% | 1.45% | No limit |
| Additional Medicare | 0.9% on wages over $200K (single)/$250K (MFJ) | None | $200K / $250K |
| Total (employee only, under wage base) | 7.65% | 7.65% | — |
For a W-2 employee earning $75,000: FICA withholding is $5,738 ($75,000 × 7.65%). The employer also pays $5,738 on the same earnings. The CBO's incidence analysis — which most economists accept — attributes the employer share to the worker as well, bringing the total FICA burden to $11,475, or 15.3% of wages. For a $75,000 earner, this exceeds their federal income tax liability of approximately $9,600.
Self-employed individuals face the full 15.3% themselves as the self-employment (SE) tax on net earnings, though they can deduct half of SE tax as an above-the-line adjustment to income. A sole proprietor netting $75,000 owes $10,597 in SE tax (15.3% × $75,000 × 0.9235 to account for the deduction calculation), and can deduct $5,298 from gross income. Our self-employment tax guide walks through this calculation step by step.
State Income Tax: 0% to 13.3%
Where you live is one of the largest single variables in your total tax burden. The nine states with no income tax on wages (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) give residents a permanent advantage of 3–13 percentage points in state tax relative to high-tax states. But "no income tax" does not mean no taxes — these states typically rely more heavily on property taxes, sales taxes, and excise taxes to fund government services.
California imposes the highest top marginal rate at 13.3% (applied to income over $1,000,000 for single filers), with the 9.3% bracket starting at $73,284 (2025). New York's top rate is 10.9%, with New York City adding a local income tax of 3.078–3.876%, creating a combined city/state/federal marginal rate of approximately 51% for the highest earners. Minnesota (9.85%), Oregon (9.9%), and Massachusetts (9% for income over $1 million under the 2022 "millionaire's surtax" ballot amendment) round out the highest-rate states.
According to WalletHub's 2026 state tax burden analysis, which measures state and local taxes as a percentage of income (including property and sales taxes), the highest-burden states are Hawaii (13.5%), Vermont (12.5%), and Maine (11.9%). The lowest-burden states are Alaska (4.9%), Wyoming (5.7%), and Tennessee (5.9%). The gap between the highest and lowest burden states exceeds 8 percentage points — representing tens of thousands of dollars per year for a high-income household.
Property and Sales Taxes: The Often-Ignored Layers
Property taxes fund local schools, fire departments, and infrastructure. The average American household pays approximately $2,500–$4,000 per year in property taxes, though this varies enormously by location. New Jersey has the highest average effective property tax rate at 2.23% of assessed value; Hawaii has the lowest at 0.27%, though Hawaii's high home values mean the dollar amounts are not small.
For a homeowner, property taxes are an unavoidable cost of ownership that must be included in any honest accounting of the total tax burden. A family with a $350,000 home in Texas (which has no state income tax but an average effective property tax rate of 1.60%) pays approximately $5,600 per year in property taxes — roughly equivalent to 8–10% of a $60,000 household income. The Tax Foundation notes that Texas residents have a total state and local tax burden of approximately 8.0% despite no income tax.
Sales taxes, while not income taxes, consume disposable income and reduce effective take-home pay. The Tax Foundation calculates that the average American pays approximately 2–3% of income in sales and excise taxes. Regressive by nature — lower-income households spend a higher proportion of income on taxable goods — sales taxes disproportionately burden households at the bottom of the income distribution.
Total Tax Burden by Income Level: The Complete Picture
Combining all five tax layers for a hypothetical single taxpayer living in a mid-burden state (e.g., Ohio, with 3.99% top state income rate and average property and sales taxes):
| Income | Federal Income Tax | FICA (Employee) | State Income Tax | Property + Sales (Est.) | Total % |
|---|---|---|---|---|---|
| $30,000 | 5.3% | 7.65% | 2.5% | 4.5% | ~20.0% |
| $50,000 | 9.0% | 7.65% | 3.2% | 4.0% | ~23.9% |
| $75,000 | 11.8% | 7.65% | 3.5% | 3.5% | ~26.5% |
| $100,000 | 14.1% | 7.65% | 3.8% | 3.0% | ~28.6% |
| $200,000 | 20.5% | 5.4% (wage base cap) | 3.9% | 2.5% | ~32.3% |
| $500,000 | 27.0% | 2.5% (wage base cap) | 3.9% | 1.5% | ~34.9% |
These figures illustrate two important points. First, the total tax burden rises with income but not as steeply as marginal rates suggest — effective rates are always significantly lower than marginal rates. Second, FICA taxes create a regressive element in the system: because Social Security tax stops at $176,100 in wages, the FICA percentage falls sharply as income rises above the wage base. A $500,000 earner pays roughly 2.5% of income in employee FICA vs. 7.65% for a $75,000 earner.
How Self-Employed Taxpayers Pay More
Freelancers, independent contractors, and sole proprietors face one structural tax disadvantage compared to W-2 employees: they pay both the employee and employer halves of FICA taxes. A freelance graphic designer netting $80,000 owes SE tax of approximately $11,304 (15.3% × $80,000 × 0.9235) before any income tax — whereas a salaried employee at the same income level owes only $6,120 in FICA withholding.
The additional $5,184 in SE tax is partially offset by two tax benefits: first, half of SE tax ($5,652) is deductible as an above-the-line adjustment to gross income, reducing federal and state income tax. Second, self-employed individuals can contribute to a SEP-IRA, Solo 401(k), or SIMPLE IRA with higher contribution limits than W-2 employees, providing additional pre-tax deductions. But even accounting for the deduction, the net SE tax burden remains higher.
Self-employed workers who earn more than $200,000 (single) or $250,000 (married filing jointly) also owe the 0.9% Additional Medicare Tax on wages above those thresholds, with no employer match to share the cost. This brings the effective Medicare rate on high-income freelancers to 2.35% on income above the threshold, compounding the self-employment tax disadvantage.
If you are self-employed, use our quarterly estimated taxes guide to ensure you are making adequate estimated payments throughout the year and avoiding the underpayment penalty under IRC §6654.
State-by-State Total Tax Burden
| State | Total Tax Burden (% of Income) | Top State Income Tax Rate | Avg. Property Tax Rate |
|---|---|---|---|
| Alaska (Lowest) | 4.9% | 0% | 1.04% |
| Wyoming | 5.7% | 0% | 0.56% |
| Florida | 6.3% | 0% | 0.86% |
| Texas | 8.0% | 0% | 1.60% |
| Nevada | 7.8% | 0% | 0.55% |
| Illinois | 9.5% | 4.95% (flat) | 2.08% |
| California | 9.5% | 13.3% | 0.71% |
| New York | 9.8% | 10.9% (state only) | 1.40% |
| New Jersey | 10.9% | 10.75% | 2.23% |
| Hawaii (Highest) | 13.5% | 11.0% | 0.27% |
Sources: WalletHub 2026 Tax Burden by State analysis; Tax Foundation 2025 state individual income tax rates; Tax Foundation property tax data. Note that "total tax burden" represents state and local taxes as a percentage of total income, excluding federal taxes. California's relatively low property tax rate (0.71%) reflects the Proposition 13 limitation on assessed value increases, which benefits long-term homeowners at the expense of new buyers.
How Investment Income Is Taxed Differently
Not all income is taxed at the same rate. Long-term capital gains (from assets held more than one year) and qualified dividends are taxed at preferential federal rates of 0%, 15%, or 20% — significantly lower than ordinary income rates. For a single filer, the 0% long-term capital gains rate applies to income up to $49,450 in 2026 (taxable income). This means a retiree with $49,000 in taxable income from qualified dividends and long-term capital gains pays zero federal income tax on those amounts.
This creates a counterintuitive result: a retiree with $200,000 in long-term capital gains can face a lower effective federal tax rate than a middle-income worker earning $75,000 in wages (who pays both ordinary income tax and FICA on every dollar). Warren Buffett famously noted that he pays a lower effective tax rate than his secretary — largely because most of his income comes from capital gains and dividends rather than wages. Our capital gains tax guide covers all the preferential rates and how to use them strategically.
The 3.8% Net Investment Income Tax (NIIT) applies an additional surcharge to net investment income — including interest, dividends, capital gains, rental income, and passive business income — for single filers with MAGI above $200,000 and joint filers above $250,000. This brings the top effective federal rate on long-term capital gains to 23.8% (20% + 3.8% NIIT) for high-income investors, before state capital gains taxes.
Strategies to Lower Your Overall Tax Percentage
Understanding your total tax burden is the first step; reducing it legally is the second. The most powerful levers for most taxpayers:
Maximize pre-tax retirement contributions. Every dollar directed to a traditional 401(k) or SEP-IRA reduces your federal and state taxable income immediately. For a taxpayer in a combined 30% federal and state marginal rate, contributing $23,500 to a 401(k) saves $7,050 in current-year taxes — a 30% instant return before any investment growth.
Use an HSA for medical expenses. The Health Savings Account is the only account where contributions, growth, and qualified distributions are all tax-free. Contributing $8,750 to a family HSA reduces both income taxes and, if contributed via payroll, FICA taxes. See our HSA tax benefits guide for the full strategy.
Optimize capital gains holding periods. Holding appreciated assets for more than one year before selling converts ordinary income rates (10–37%) to long-term capital gains rates (0–20%). On a $50,000 gain, this difference can be $12,500–$18,500 in federal tax savings alone.
Consider state and local tax implications in location decisions. The $40,400 SALT deduction cap in 2026 (up from $10,000) significantly changes the after-tax cost of living in high-tax states. But even with the expanded cap, moving from California (9.3%+ state income tax) to Nevada (0%) can save $9,300 or more on each $100,000 of income. For remote workers, the choice of domicile is a legitimate and significant tax planning variable. See our remote work state income tax guide for the rules on domicile and dual-state filing.
Understand your effective rate, not your marginal rate. Tax decisions — like whether to contribute more to a Roth or traditional account — should be based on your effective rate in retirement versus your marginal rate today. Most retirees have lower income than their peak working years, making the traditional (pre-tax) approach optimal for most middle-income savers.
Frequently Asked Questions
What percentage of income does the average American pay in taxes?
The average American household pays approximately 24–30% of gross income in combined federal, state, and local taxes — including federal income tax, FICA payroll taxes, state income tax, property tax, and sales taxes. The exact figure depends heavily on income level, filing status, location, and whether income is from wages or investments.
Does the US have high taxes compared to other countries?
By OECD standards, the US has a moderate overall tax burden. According to OECD Revenue Statistics 2025, the US tax-to-GDP ratio is approximately 27%, compared to 46% in France, 43% in Sweden, and 35% in Germany. The US is the only OECD country without a national VAT, relying more on income taxes and less on consumption taxes than most peers.
Why do I feel like I pay more in taxes than the percentages suggest?
Several factors create this perception: marginal rates (the rate on the last dollar) are higher than effective rates (average rate on all income); employer FICA taxes are invisible to most workers but represent real compensation; and consumption taxes (sales, excise, property) are paid throughout the year rather than in a single visible payment. Adding all layers often reveals a total burden higher than federal income tax alone.
What percentage of income goes to Social Security and Medicare?
Employees pay 7.65% of wages in FICA taxes: 6.2% for Social Security (capped at the $176,100 wage base in 2026) and 1.45% for Medicare (no income cap). Self-employed individuals pay 15.3% as the full SE tax, though they deduct half of it from gross income. An additional 0.9% Medicare tax applies to wages over $200,000 (single) or $250,000 (MFJ).
How does investment income affect my tax percentage?
Long-term capital gains and qualified dividends are taxed at 0%, 15%, or 20% federally — significantly lower than ordinary income rates. This means investors with high income from appreciated assets can have lower effective tax rates than wage earners at the same income level. The 3.8% Net Investment Income Tax also applies to investment income above $200,000/$250,000 MAGI thresholds.
Which states have the lowest total tax burden?
Alaska (4.9%), Wyoming (5.7%), Tennessee (5.9%), and Florida (6.3%) have the lowest total state and local tax burdens as a percentage of income, according to WalletHub's 2026 analysis. All have no state income tax on wages. However, no-income-tax states often offset revenue through higher property taxes, sales taxes, or other fees — making the total burden still meaningful.
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