What ordinary income tax rate means
Your ordinary income tax rate is the percentage of tax you owe on income that is not taxed as a capital gain or may have access to dividend. It applies to wages, salary, self-employment income, interest, and most other money you receive. The rate you pay depends on how much total income you earned that year and your filing status — it is not a flat number for everyone.
The federal government uses a tax bracket system. You do not pay one rate on all your income. Instead, your income is divided into chunks, and each chunk is taxed at a different rate. The rates range from 10% to 37%, but most people pay somewhere in the middle. Your state may also charge an ordinary income tax on top of the federal rate.
Ordinary income rates are different from capital gains rates, which apply when you sell an investment at a profit. Capital gains are usually taxed at lower rates — 0%, 15%, or 20% depending on your income level. This is why investment income can be taxed differently than a paycheck.
Key Takeaways
- Ordinary income tax rates are set by federal tax brackets and range from 10% to 37%, with your rate determined by your total income and filing status, not by a single flat percentage.
- You pay tax on ordinary income in layers — the first portion of your income is taxed at 10%, the next portion at 12%, and so on, until all your income is accounted for.
- Most states charge their own ordinary income tax on top of the federal rate, and state rates vary widely from 0% to over 13%.
- Ordinary income includes wages, salary, self-employment income, interest, and rental income, but does not include capital gains or may have access to dividends, which have their own lower tax rates.
How tax brackets work with ordinary income
The federal tax bracket system means you do not jump from one rate to another. Instead, your income fills up each bracket in order. If you are single and earned $50,000 in 2024, you do not pay 22% on all of it. You pay 10% on the first portion, 12% on the next portion, and 22% on only the amount above a certain threshold.
Each year, the IRS adjusts the bracket thresholds for inflation. This means the income level where you move from one bracket to the next changes annually. A bracket that applied at $45,000 last year might apply at $46,000 this year. You need to check the current year's brackets when you calculate your tax, because using old numbers will give you the wrong answer.
Your filing status — single, married filing jointly, married filing separately, or head of household — determines which bracket thresholds apply to you. A married couple filing jointly reaches higher income levels before hitting the top brackets than a single person does. This is why two people with the same income can owe different amounts of tax depending on whether they are married.
Federal ordinary income tax brackets for 2024
The 2024 federal brackets for single filers are: 10% up to $11,600; 12% from $11,601 to $47,150; 22% from $47,151 to $100,525; 24% from $100,526 to $191,950; 32% from $191,951 to $243,725; 35% from $243,726 to $609,350; and 37% on anything above $609,350. For married couples filing jointly, the thresholds are roughly double.
These numbers change every year. The IRS publishes updated brackets in the fall for the following tax year. If you are calculating your own tax or estimating what you will owe, use the brackets for the year you are filing, not the previous year. The IRS website and most tax software automatically use the correct year's brackets.
These are federal rates only. Your state may add its own tax on top. Some states have no income tax at all, while others charge rates as high as 13%. Your total ordinary income tax is the federal rate plus your state rate (if your state has one).
State ordinary income tax rates
Nine states have no state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only interest and dividends, not wages). If you live in one of these states, you pay only the federal ordinary income tax rate.
Other states charge a flat rate — the same percentage on all ordinary income regardless of how much you earn. Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, and Pennsylvania all use flat rates ranging from about 3% to 5.75%. A few states use a progressive system like the federal government, with multiple brackets and rates that increase as income rises.
Your state tax bill depends on where you live on December 31 of the tax year, not where you worked or where you earned the money. If you moved during the year, you may owe tax to two states. Some states have reciprocal agreements that prevent double taxation, but you still need to file in both places.
What counts as ordinary income
Ordinary income includes your W-2 wages, salary, bonuses, and tips. It also includes self-employment income if you run a business or freelance. Interest from savings accounts, money market accounts, and bonds is ordinary income. Rental income from property you own is ordinary income. Distributions from traditional IRAs and 401(k)s are ordinary income.
Unemployment benefits, Social Security benefits (in some cases), and gambling winnings are all taxed as ordinary income. Alimony you receive is ordinary income. If you receive a refund of state or local taxes from a previous year, that refund is ordinary income in the year you receive it.
Ordinary income does not include capital gains (profit from selling an investment), may have access to dividends (certain stock dividends), or tax-exempt interest (interest from municipal bonds). These are taxed under different rules and usually at lower rates. If you are unsure whether a particular type of income is ordinary or not, the IRS website or a tax professional can tell you.
How ordinary income tax differs from capital gains tax
Capital gains are profits from selling an asset — a stock, rental property, or business. Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20%, depending on your income level. These rates are lower than ordinary income rates. Short-term capital gains (assets held one year or less) are taxed as ordinary income at your regular bracket rate.
may have access to dividends from stocks are also taxed at the lower capital gains rates, not ordinary income rates. This is why investors often pay less tax on investment income than on wages. A person earning $100,000 in salary might pay 22% or 24% tax on that income, but only 15% on $100,000 in long-term capital gains.
The distinction matters because it affects your total tax bill. If you have both ordinary income and capital gains, you calculate the tax on each separately and add them together. Your ordinary income is taxed first, which can push you into a higher capital gains bracket if your total income is high enough.
How to find your ordinary income tax rate
Start by adding up all your ordinary income for the year — wages, interest, rental income, and any other non-capital-gain income. Then look at the federal tax bracket table for your filing status and the current tax year. Find the row where your total income falls, and that row shows your tax bracket and rate.
Remember that this is your marginal rate — the rate you pay on your last dollar of income. Your effective rate (total tax divided by total income) is lower, because you pay lower rates on the earlier portions of your income. Tax software and the IRS tax tables do this calculation for you automatically.
If you want to know your state rate, look up your state's tax brackets or flat rate. Add the state rate to the federal rate to get your combined ordinary income tax rate. Keep in mind this is still not the exact amount you will owe — deductions, credits, and other factors change your final bill.
Frequently Asked Questions
Is my ordinary income tax rate the same as my effective tax rate?
No. Your ordinary income tax rate (also called your marginal rate) is the percentage you pay on your last dollar of income. Your effective rate is your total tax bill divided by your total income. The effective rate is always lower because you pay lower rates on the first portions of your income. If your marginal rate is 22%, your effective rate might be 15%.
Do I pay the same ordinary income tax rate on all my income?
No. The tax bracket system means different portions of your income are taxed at different rates. Your first dollars are taxed at 10%, the next portion at 12%, and so on. Only the income that falls in the highest bracket you reach is taxed at your marginal rate. This is why earning more money does not automatically push all your income into a higher tax bracket.
What if I live in a state with no income tax?
You pay only the federal ordinary income tax rate. Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — do not tax ordinary income. If you live in one of these states, your total ordinary income tax is just the federal amount.
Can my ordinary income tax rate change from year to year?
Yes. The federal tax brackets are adjusted for inflation every year, so the income thresholds where you move from one bracket to the next change. Your rate can also change if Congress passes new tax legislation. Additionally, if your income changes significantly, you may move into a different bracket and pay a different marginal rate.
How do I know if I should estimate my taxes during the year?
If you are self-employed or have income that does not have taxes withheld, you may need to make quarterly estimated tax payments. The IRS requires this if you expect to owe $1,000 or more when you file. Use the current year's ordinary income tax brackets and your expected annual income to estimate what you will owe, then divide by four and pay each quarter.