Tax Rate

Key takeaways
* A tax rate is the percentage applied to income, sales, property, or capital gains to determine tax owed.
* The United States uses a progressive income tax: higher income is taxed at higher marginal rates.
* Marginal rates apply to portions of income; the effective tax rate is the total tax paid divided by total income.
* Sales tax, real property tax, and capital gains tax use different rules and rates; rates vary by jurisdiction and change annually.

What is a tax rate?

A tax rate is the percentage of a taxable amount—income, a sale, property value, or investment gain—paid to a government. Governments set tax rates to raise revenue for public services and infrastructure. How a rate is applied depends on the tax type and the taxing authority (federal, state, local).

Common tax systems

• Progressive tax: rate increases as income increases (used for U.S. federal income tax).
• Flat (proportional) tax: same rate for all taxpayers regardless of income.
• Regressive tax: a larger percentage burden falls on lower-income taxpayers (often occurs with fixed fees or certain consumption taxes relative to income).

Income tax: marginal vs. effective rates

Income tax in many countries (including the U.S.) is progressive and uses marginal tax brackets. A marginal tax rate is the rate applied to each additional dollar earned within a specific bracket. The effective tax rate is the average rate actually paid: total tax divided by total taxable income.

Example (illustrative):
* A single taxpayer earning $65,000 pays tax across multiple brackets, resulting in a total tax of $9,214 and an effective rate of about 14.18% ($9,214 ÷ $65,000).
* A single taxpayer earning $150,000 pays across higher brackets, resulting in total tax of $28,847 and an effective rate of about 19.23% ($28,847 ÷ $150,000).

Note: Marginal bracket thresholds, standard deductions, credits, and other adjustments affect final tax liability and change annually.

U.S. federal income tax rates (overview)

Federal marginal tax rates in recent years have included these brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Exact income thresholds for each bracket depend on filing status (single, married filing jointly, married filing separately, head of household) and are updated annually by the IRS.

Sales tax

Sales tax is imposed by states and sometimes localities on purchases of goods and services at the point of sale. Rates vary widely by state and locality—for example, a state-level rate may be 4% in one state and 7.25% in another—plus any local additions.

Capital gains and dividends

Capital gains tax applies when an investment is sold for a profit. Treatment depends on holding period:
* Short-term capital gains (assets held one year or less) are taxed at ordinary income tax rates (marginal rates).
* Long-term capital gains (assets held more than one year) are taxed at preferential rates, typically 0%, 15%, or 20%, depending on taxable income and filing status. Qualified dividends generally follow the long-term capital gains schedule; nonqualified dividends are taxed as ordinary income.

Representative long-term capital gains rate thresholds (examples by filing status; updated thresholds change yearly):

For tax year 2024 (illustrative):
* Single: 0% up to $47,025; 15% $47,025–$518,900; 20% over $518,900.
Married filing jointly: 0% up to $94,050; 15% $94,050–$583,750; 20% over $583,750.
Head of household: 0% up to $63,000; 15% $63,000–$551,350; 20% over $551,350.
* Married filing separately: 0% up to $47,025; 15% $47,025–$291,850; 20% over $291,850.

For tax year 2025 (illustrative):
* Single: 0% up to $48,350; 15% $48,350–$533,400; 20% over $533,400.
Married filing jointly: 0% up to $96,700; 15% $96,700–$600,050; 20% over $600,050.
Head of household: 0% up to $64,750; 15% $64,750–$566,700; 20% over $566,700.
* Married filing separately: 0% up to $48,350; 15% $48,350–$300,000; 20% over $300,000.

Always check current IRS guidance or a tax professional for the latest thresholds and rules.

Tax rates abroad

Countries use different systems: progressive, flat (proportional), or regressive elements. Some nations impose a flat personal income tax rate; others use multi-bracket progressive systems. Sales and consumption taxes, social contributions, and local levies further affect total tax burdens and vary widely by country.

How tax rates are imposed

Tax rates are set by governmental authorities and expressed as percentages of taxable value. The specific base (gross income, taxable income after deductions, sale price, assessed property value) and allowable deductions, credits, or exemptions determine the tax owed.

Bottom line

A tax rate is the percentage applied to a taxable base—income, sales, property, or investment gains—to calculate tax owed. Understanding the difference between marginal and effective rates, and knowing which rate schedule applies to a given situation, helps taxpayers estimate liability and plan effectively. Tax rates and bracket thresholds change over time, so consult current official guidance or a tax professional when making tax decisions.