Who Pays the Most Taxes in the U.S.?

Most income taxes in the United States are paid by the people with the most income. That is in keeping with the generally progressive nature of the individual federal income tax, the primary source of government revenues, which applies higher tax rates to higher incomes. However, some taxes fall more heavily on people with less income, while the most affluent of all can sometimes pay little or no income tax.

A financial advisor can help you plan to manage your taxes and create effective strategies for your personal situation.

The Biggest Taxpayers

The biggest source of tax revenue in the United States is the federal individual income tax and the biggest source of individual income tax revenues consists of the nation’s highest earners. According to an estimate of the Tax Policy Center, 67% of all federal income tax collected will come from the top 20% of earnings, who were bringing home more than $217,000 annually. The situation where a small minority of high earners pay most of the individual income taxes has remained steady for many years.

Beyond that, figuring out who pays the most total taxes in the United States is complicated by the fact that there are many types of taxes. Federal individual income taxes levied on earnings from working and investing is just one variety, albeit the most important.

Payroll taxes supporting Social Security, Medicare and unemployment benefits are the second-largest source of federal tax revenues. Employers deduct these Federal Insurance Contributions Act (FICA) taxes from workers’ paychecks.

Other taxes include corporate income taxes, estate taxes, gift taxes and customs duties. Excise taxes are assessed on gasoline, alcohol, gambling and some other products and services. These taxes land more or less heavily on different taxpayers. For example, lower-income workers pay a larger percentage of their incomes in payroll taxes than higher-income workers thanks to the cap on income subject to Social Security taxes.

The capital gains tax is a special tax imposed on certain types of investment income that is in lieu of and generally lower than the individual income tax rates. Capital gains taxes are mostly paid by people who have more assets, while people with few assets may pay little or no capital gains tax. Similarly, property taxes, which are the major source of revenue for state and local governments, are only levied on the owners of property such as real estate.

Factors Influencing Who Pays the Most Taxes

A number of factors determine how much someone pays in federal income tax. The interplay between these factors and taxpayers’ efforts to save on taxes while conforming to the tax law, is largely responsible for the complexity of tax planning and preparing tax returns. Here are some of the major considerations.

Taxable income: As your income rises, you move into a higher tax bracket, which means more of your income goes to taxes.
Filing status: Tax rates vary depending on whether you are filing as a single individual, a married couple filing jointly, a married couple filing separately or as a head of household.
Adjustments to income. Retirement plan contributions, student loan interest payments and some other outlays can reduce your taxable income and your taxes.
Exemptions: Taxpayers can further reduce income by claiming exemptions, including dependency exemptions for their children.
Deductions: Yet another way to reduce taxable income is by claiming deductions. In addition to the standard deduction, you may be able to claim deductions for medical expenses, charitable contributions, home mortgage interest and other costs.
Tax credits: Credits for education and energy conservation, among other categories, can not only reduce your taxes but also result in the government sending you a check.

Managing your tax liability consists largely of working with these factors. For example, if you have an unusual amount of income in one year, you may be able to use averaging to spread the income among different taxable years, keeping you from moving into a higher tax bracket.

Using the capital gains tax to reduce income taxes is also important. If you have assets that have appreciated, you could be subject to a large capital gains tax bill when you sell them. On the other hand, if you never sell them, you may be able to pass them on to your heirs without ever paying any income tax on your increased wealth.

Very affluent taxpayers can pay their bills while avoiding income and other taxes by a number of other means, including pledging their assets as collateral for loans, the proceeds of which are not taxable.

Tips for Paying Less in Income Tax

Reducing your income tax bill often comes down to knowing which strategies are available and how they fit your overall financial picture. While not every approach works for every taxpayer, understanding the most common tax-saving tools can help you make more informed decisions throughout the year. Below are several widely used strategies for paying less in income tax, along with how each one works.

Take Advantage of Tax-Advantaged Accounts: Contributing to accounts such as 401(k)s, traditional IRAs and health savings accounts (HSAs) can lower your taxable income while supporting long-term savings goals. These accounts offer tax-deferred or tax-free growth, depending on the type. For many taxpayers, maximizing eligible contributions is one of the most straightforward ways to reduce income taxes.
Use Deductions and Credits Strategically: Deductions lower the amount of income that’s taxed, while credits reduce your tax bill dollar for dollar. Claiming education credits, child-related credits or itemized deductions when they exceed the standard deduction can lead to meaningful savings. Understanding which benefits you qualify for is key to avoiding missed opportunities.
Manage Capital Gains Thoughtfully: The timing of investment sales can significantly affect taxes. Holding investments for more than one year may qualify gains for lower long-term capital gains tax rates. Selling assets during lower-income years or offsetting gains with losses can further reduce taxes owed.
Consider Tax-Efficient Investing: Not all investments are taxed the same way, which makes asset placement important. Keeping tax-inefficient investments in tax-advantaged accounts and more tax-efficient assets in taxable accounts can improve after-tax returns. This strategy is especially useful for higher-income investors.
Adjust Withholding and Estimated Payments: Reviewing paycheck withholding or quarterly estimated payments can help prevent overpaying taxes during the year. A large refund often means you withheld too much, limiting your cash flow. Adjusting withholding can help align tax payments more closely with what you actually owe.
Plan With Professional Guidance: Tax rules are complex and frequently change, making it easy to overlook savings opportunities. A tax professional or financial advisor can help tailor strategies to your income level, filing status and long-term goals. Proactive planning throughout the year often leads to better results than last-minute decisions.

Paying less in income tax usually isn’t about a single move, but rather a combination of smart, coordinated strategies. By understanding your options and reviewing them regularly, you can keep more of what you earn while staying compliant with tax laws. When your situation becomes more complex, professional guidance can help ensure your tax plan supports both short-term savings and long-term financial goals.

Bottom Line

The people with the highest incomes generally pay the highest taxes in the United States, thanks to the generally progressive individual income tax system used by the federal government. There are some exceptions to this type of policy, as very wealthy individuals can find ways to reduce their taxes, sometimes paying none at all, by making the most of so-called loopholes in the tax code. However, as a rule, the top 20% of earners pay more income taxes than the rest of the tax-paying population put together.

Tax Tips

Managing and reducing the amount of taxes you pay can benefit from the assistance of a financial advisor. Finding a financial advisor doesn’t need to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s Federal Income Tax Calculator can help you break down your tax obligations including the total tax as well as the type of tax and your marginal and effective tax rates.