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The U.S. tax system distinguishes between various types of income. But the two primary categories are ordinary income tax and capital gains tax. Ordinary income tax is applied to earnings from routine activities, including wages, salaries and commissions, as well as interest from bank deposits. On the other hand, capital gains tax is levied when you sell capital assets like stocks, bonds, real estate or other investments for more than its purchase price.
If you have questions about how ordinary income and capital gains taxes impact your finances, consider speaking with a financial advisor
Ordinary Income Tax
Income earned from working for wages, salaries and commissions, as well as income earned from interest paid on bank deposits, is taxed as ordinary income. This type of income is taxed at your regular tax rate, also known as your marginal tax rate.
The marginal rate is determined by tax brackets. The IRS publishes annually updated income ranges for seven tax brackets that go from 10% to 37%. The percentage of tax applied increases as income rises.
Here are the ordinary income tax rates and brackets for the 2026 tax year:
| Rate | Single | Married, Filing Jointly | Married, Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 – $12,400 | $0 – $24,800 | $0 – $12,400 | $0 – $17,700 |
| 12% | $12,400 – $50,400 | $24,800 – $100,800 | $12,400 – $50,400 | $17,700 – $67,450 |
| 22% | $50,400 – $105,700 | $100,800 – $211,400 | $50,400 – $105,700 | $67,450 – $105,700 |
| 24% | $105,700 – $201,775 | $211,400 – $403,550 | $105,700 – $201,775 | $105,700 – $201,750 |
| 32% | $201,775 – $256,225 | $403,550 – $512,450 | $201,775 – $256,225 | $201,750 – $256,200 |
| 35% | $256,225 – $640,600 | $512,450 – $768,700 | $256,225 – $384,350 | $256,200 – $640,600 |
| 37% | $609,351+ | $768,700+ | $384,350+ | $640,600+ |
Let’s look at a simplified example of how this works. This example doesn’t account for deductions and other factors.
A taxpayer with taxable income of $75,000 in 2026 would be taxed according to the following tax brackets:
- 10% on the first $12,400 equals $1,240.
- 12% on the amount over $12,400 and up to $50,400. This amount is $38,000, so the tax would be $4,560.
- 22% on the amount over $50,400 and up to $105,700. For someone with a $75,000 in taxable income, this amount is $24,600, so the tax would be $5,412.
The total federal tax on ordinary income in this simplified example would $1,240 + $4,560 + $5,412 = $11,212. Keep in mind that this example doesn’t factor in the standard deduction or itemized deductions, which would lower the taxable income.
Capital Gains Tax
Capital gains tax applies when you sell a capital asset for more than you paid for it. Capital assets include stocks, bonds, jewelry, real estate and other investments. The tax rate varies depending on whether it’s a short-term or long-term capital gain, and also on your income. Different capital gains tax rates may apply to specific types of assets, as well.
Short-term capital gains result from sales of assets held for a year or less. These capital gains are taxed at your ordinary income tax rate. So, if you sell a stock you owned for six months and make a $10,000 profit, this will be added to your ordinary income and taxed accordingly.
Long-term capital gains from sales of assets held for more than a year receive a more favorable tax rate. Long-term capital gains rates for 2026 are 0%, 15% or 20% depending on your income.
Here are the long-term capital gains tax rates and brackets for the 2026 tax year:
| Tax Rate | Individuals | Married Filing Jointly | Head of Household | Married Filing Separately |
|---|---|---|---|---|
| 0% | $0 – $49,450 | $0 – $98,900 | $0 – $66,200 | $0 – $49,450 |
| 15% | $49,450 – $545,500 | $98,900 – $613,700 | $66,200 – $579,600 | $49,450 – $306,850 |
| 20% | $545,500+ | $613,700+ | $579,600+ | $306,850+ |
For example, if you sell a stock you held for two years and make a $20,000 profit, the tax on this gain would be:
- 0% if your taxable income, including the gain, is $49,450 or less.
- 15% if your taxable income is more than $49,450 but not more than $545,500.
- 20% if your taxable income is over $545,500.
To combine this with the previous example involving an ordinary income of $75,000, adding a $20,000 long-term capital gain results in a total taxable income of $95,000 (before any deductions). This would place you in the 15% bracket for long-term capital gains. The additional tax on your $20,000 gain would be 15% of $20,000 or $3,000, increasing your total tax bill including ordinary and capital gains tax to $14,212.
Special Considerations
In addition to the basic rates, high-income investors may also have to pay an additional 3.8% net investment income tax. Also, certain types of assets have specific rules. For example, capital gains on sales of collectibles such as art and jewelry are taxed at a flat rate of 28%.
As well as making gains when selling assets, you may also experience losses. These losses can be used to reduce your overall capital gains for a given tax year and potentially reduce the taxes you owe. An investing strategy called tax-loss harvesting can be employed to make the most of money-losing asset sales.
Want a quick estimate of your tax bill? Try our income tax calculator to see your potential liability.
Income Tax Calculator
Calculate your federal, state and local taxes for the 2025 tax year.
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About This Calculator
Our income tax calculator calculates your federal, state and local taxes based on several key inputs: your household income, location, filing status and number of personal exemptions.
How Income Taxes Are Calculated
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First, we calculate your adjusted gross income (AGI) by taking your total household income and reducing it by certain items such as contributions to your 401(k).
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Next, from AGI we subtract exemptions and deductions (either itemized or standard) to get your taxable income. Exemptions can be claimed for each taxpayer.
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Based on your filing status, your taxable income is then applied to the tax brackets to calculate your federal income taxes owed for the year.
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Your location will determine whether you owe local and / or state taxes.
When Do We Update? - We check for any updates to the latest tax rates and regulations annually.
Customer Service - If you would like to leave any feedback, feel free to email info@smartasset.com.
Assumptions
Deductions
- "Other Pre-Tax Deductions" are not used to calculate state taxable income.
Credits
- The only federal credit automatically calculated is the Savers Credit, depending on your eligibility.
- We do not apply any refundable credits, like the Child Tax Credit or Earned Income Tax Credit (EITC).
- We do not apply state credits in our calculations.
Itemized Deductions
- If itemizing at the federal level, you may need to itemize at the state level too. Some states don't allow itemized deductions, which is accounted for in our calculations.
- When calculating the SALT deduction for itemized deductions, we use state and local taxes, and we assume your MAGI.
- We assume that there is no cap to itemized deductions, if a state allows them.
- We do not categorize itemized deductions (such as medical expenses or mortgage interest), which could be subject to specific caps per state.
Local Tax
- Depending on the state, we calculate local taxes at the city level or county level. We do not include local taxes on school districts, metro areas or combine county and city taxes.
- With the exception of NYC, Yonkers, and Portland/Multnomah County, we assume local taxes are a flat tax on either state taxable income or gross income.
Actual results may vary based on individual circumstances and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee income tax amounts or rates. Past performance is not indicative of future results.
SmartAsset.com does not provide legal, tax, accounting or financial advice (except for referring users to third-party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions and tools are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. Users should consult their accountant, tax advisor or legal professional to address their particular situation.
Bottom Line
Ordinary income tax applies to regular earnings like wages, salaries and interest and is taxed at your marginal tax rate, which varies from 10% to 37% depending on your income. Capital gains tax, charged when selling assets for a profit, varies depending on how long you owned an asset. Short-term gains on assets held a year or less are taxed as ordinary income, while long-term gains held for over a year have generally lower tax rates.
Tips for Tax Planning
- Careful tax planning is one of the most effective ways to increase your income and wealth, and talking to a financial advisor can help with this important task. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area. 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.
- Check out SmartAsset’s Capital Gains Tax Calculator to find out how much tax you’ll owe when selling investments.
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