- Vastly different rates exist for capital gain versus ordinary income for very high income individuals. A wage earner with over $400,000 of earned income will enter a 37% marginal rate today (39.6% after 2025). In contrast, a person with capital gain and dividend income will be in a marginal rate of 23.8%. This is a frequent question I get from both students and practitioners – why are capital gains taxed lower than ordinary income. There are reasons, but I don’t think it supports a difference once income passes the $500,000 level.* Tax it all the same after some high level such as $400,000 or more. And that high income wage earner will have 2.9% Medicare tax on income above $147,000 (figure for 2022) and an additional 0.9% on income above $200,000 ($250,000 if MFJ). So a capital gain rate of 37% (or 39.6% once AGI exceeds $1 million as President Biden proposes (see page 8 of this table)), causes the high wage earner and high capital gain recipient to both be at a marginal rate of 43.4%. Note that I am only talking about very high income individuals (less than half of the top 1% of individuals).