An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.
How Does the Individual Income Tax Work?
In the United States, individual income taxes are levied at the federal level as well as in most states. Many countries around the world also levy individual income taxes.
The U.S. income tax is progressive, which means that tax rates (the percentage of your income that you pay in taxes) increase as taxpayer income increases. The U.S. levies income tax rates ranging from 10 percent to 37 percent that kick in at the specific income thresholds outlined below. The income ranges for which these rates apply are called tax brackets. All income that falls within each bracket is taxed at the corresponding rate.
2024 Federal IncomeTax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households| Tax Rate | For Single Filers | For Married Individuals Filing Joint Returns | For Heads of Households |
|---|
| 10% | $0 to $11,600 | $0 to $23,200 | $0 to $16,550 |
| 12% | $11,600 to $47,150 | $23,200 to $94,300 | $16,550 to $63,100 |
| 22% | $47,150 to $100,525 | $94,300 to $201,050 | $63,100 to $100,500 |
| 24% | $100,525 to $191,950 | $201,050 to $383,900 | $100,500 to $191,950 |
| 32% | $191,950 to $243,725 | $383,900 to $487,450 | $191,950 to $243,700 |
| 35% | $243,725 to $609,350 | $487,450 to $731,200 | $243,700 to $609,350 |
| 37% | $609,350 or more | $731,200 or more | $609,350 or more |
| Source: Internal Revenue Service |
See 2024 Tax Brackets
A graduated-rate structure like the one above, where every dollar of income above each threshold is taxed at a higher rate, results in marginal tax rates, the amount of additional tax paid for every additional dollar earned as income.
Due to various deductions, such as the standard deduction and itemized deductions, and credits, such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), most taxpayers do not pay federal income taxes on all of their income. Many state tax codes also offer similar credits and deductions.
Who Pays the Federal Income Tax?
The progressive design of the U.S. income tax code leads to higher-income individuals paying a larger share of income taxes than lower-income individuals.
Between 1950 and 2016, an increasing number of U.S. taxpayers owed zero income taxes after credits and deductions. Despite occasional dips, the trend has been an increase in the percentage of nonpayers, from 28 percent in 1950 to 33.4 percent in 2016. During this period, the minimum percentage of nonpayers was 16 percent in 1969, and the maximum was 41.7 percent in 2009.
A Primary Source of Government Revenue
Compared to the OECD average, the United States relies significantly more on individual income taxes than other developed countries. While OECD countries on average raised 23.9 percent of total tax revenue from individual income taxes in 2021, in the U.S., individual income taxes (federal, state, and local) were the primary source of tax revenue at 42.1 percent, a difference of over 18 percentage points.
State and localities rely heavily on the individual income tax, which comprised 22.8% percent of total U.S. state and local tax collections in fiscal year 2020, the latest year of data available. The level of reliance on income taxes varies significantly by state.
Which States Levy These Taxes?
As of 2024, 43 states levy individual income taxes. Forty-one tax wage and salary income. New Hampshire exclusively taxes dividend and interest income while Washington only taxes capital gains income. Seven states levy no individual income tax at all.
Of those states taxing wages, 12 have single-rate tax structures, often called a “flat tax,” with one rate applying to all taxable income. Conversely, 29 states and the District of Columbia levy graduated-rate, progressive income taxes, with the number of brackets varying widely by state. Hawaii has 12 brackets, the most in the country.
States’ approaches to income taxes vary in other details as well. Some states double their single-bracket widths for married filers to avoid a “marriage penalty.” Some states index tax brackets, exemptions, and deductions for inflation; many others do not. Some states tie their standard deductions and personal exemptions to the federal tax code, while others set their own or offer none at all.
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FAQs
Individual income tax is also referred to as personal income tax. This type of income tax is levied on an individual's wages, salaries, and other types of income. This tax is usually a tax that the state imposes.
What is the definition of individual income tax? ›
An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns.
Is individual income tax federal or state? ›
The federal government and most states have income taxes. The rules and rates vary between individual states and the federal system. Federal taxes are progressive, with higher tax rates on higher income levels. Some states have a progressive tax system, while others impose a flat tax rate on all income.
What is individual income tax vs payroll tax? ›
Tax levies: Payroll tax is a tax the government levies on employers and employees. While income tax is levied on individuals' salaries, wages, and other incomes. Usage: Payroll taxes generally fund three specific programs: Social Security, Medicare, and unemployment benefits.
How do you calculate individual tax income? ›
An individual's federal income tax liability for a tax year is generally determined by multiplying his or her taxable income by the applicable income tax rate, subtracting allowable tax credits, and adding other taxes. Taxable income is determined on an annual basis, according to the taxpayer's tax year.
Who is an individual taxpayer? ›
A taxpayer is a person or organization (such as a company) subject to pay a tax. Modern taxpayers may have an identification number, a reference number issued by a government to citizens or firms. The term "taxpayer" generally characterizes one who pays taxes.
How is individual income tax collected? ›
Individual income taxes, which are collected on the money people and businesses earn through work. In 2022, the government collected an average of $7,898 in individual income taxes per person, the largest source of federal revenues. Payroll taxes, which are collected from a worker's wages and salaries.
Are Social Security tax and income tax the same? ›
No, these two types of taxes are separate. The Social Security tax is deducted before income tax is applied, so employees aren't paying double taxes on the same money.
What is the difference between withholding tax and personal income tax? ›
Withholding tax is the amount of money that your employer holds back from your paycheck and sends to the government as payment toward your income taxes. Anyone who earns income is responsible for paying income tax. You could get a tax refund after filing your taxes, or you may owe more money.
Is self-employment tax the same as personal income tax? ›
In general, the wording "self-employment tax" only refers to Social Security and Medicare taxes and not any other tax (like income tax). Before you can determine if you are subject to self-employment tax and income tax, you must figure any net profit or net loss from your business.
Nontaxable income won't be taxed, whether or not you enter it on your tax return. The following items are deemed nontaxable by the IRS: inheritances, gifts and bequests. cash rebates on items you purchase from a retailer, manufacturer or dealer.
How much federal tax should I pay on $50,000? ›
If you are single and a wage earner with an annual salary of $50,000, your federal income tax liability will be approximately $5700. Social security and medicare tax will be approximately $3,800. Depending on your state, additional taxes my apply.
How do you calculate individual income before taxes? ›
To calculate your annual gross income, you can multiply your gross pay by the number of pay periods you have in a year. To figure out your annual net income, subtract whatever is withheld in federal, state and local taxes—plus other deductions—from your gross pay.
What is the tax code definition of individual? ›
The Internal Revenue Code defines “person” and sets forth which persons are subject to federal taxes. Section 7701(a)(14) defines “taxpayer” as “any person” subject to any internal revenue tax, and section 7701(a)(1) defines “person” to include an individual, trust, estate, partnership, or corporation.
What is the individual deduction for income tax? ›
The standard deduction amounts for 2024 have increased to $14,600 for single filers, $29,200 for joint filers and $21,900 for heads of household. People 65 or older may be eligible for a higher amount. The 2024 standard deduction is taken on tax returns filed in 2025. $14,600.
What is my individual income? ›
Individual income is the amount of money earned by a single individual from his wage, investments, etc.
What is the individual income before taxes? ›
Yes, gross income is the total amount of income a person or company has earned before deductions against that income. Gross income is calculated as the total amount of revenue earned before subtracting expenses like costs, interest, and taxes.
