The U.S. tax system follows a progressive structure, meaning different portions of your income are taxed at different federal income tax rates within specific federal tax brackets. The progressive tax system ensures that higher-income individuals are taxed at higher rates while lower-income earners pay lower rates, which is meant to create a fair tax system, where the richer are meant to contribute back to the society from which they profited.
While the system creates a fair environment regarding taxes, it can also be significantly complex and it’s not always easy to figure out which tax bracket you’re in. As your earnings increase, only the additional income falls into higher brackets, rather than your entire salary being taxed at the highest rate you qualify for. If you want to learn how to save money, it’s crucial to understand how tax brackets apply to your finances.
Federal Income Tax Brackets for 2024
For the 2024 tax year, which you’ll file in 2025, the IRS has adjusted the tax brackets to reflect inflation adjustments. The U.S. federal progressive tax system uses income tax rates that vary based on tax brackets, meaning individuals pay different rates on different portions of their income. Depending on your income, the 2024 tax brackets are:
Single Filers:
- 10%: Up to $11,600
- 12%: $11,601 to $47,150
- 22%: $47,151 to $100,525
- 24%: $100,526 to $191,950
- 32%: $191,951 to $243,725
- 35%: $243,726 to $609,350
- 37%: $609,351 and above
Married Filing Jointly:
- 10%: Up to $23,200
- 12%: $23,201 to $94,300
- 22%: $94,301 to $201,050
- 24%: $201,051 to $383,900
- 32%: $383,901 to $487,450
- 35%: $487,451 to $731,200
- 37%: $731,201 and above
Head of Household:
- 10%: Up to $16,550
- 12%: $16,551 to $63,100
- 22%: $63,101 to $100,500
- 24%: $100,501 to $191,950
- 32%: $191,951 to $243,700
- 35%: $243,701 to $609,350
- 37%: $609,351 and above
2025 Federal Income Tax Brackets
Looking ahead to 2025, tax brackets will once again adjust for inflation. The announced 2025 federal income tax rates and brackets are the following:
Single Filers:
- 10%: Up to $11,925
- 12%: $11,926 to $48,475
- 22%: $48,476 to $103,350
- 24%: $103,351 to $197,300
- 32%: $197,301 to $250,525
- 35%: $250,526 to $626,350
- 37%: $626,351 and above
Married Filing Jointly:
- 10%: Up to $23,850
- 12%: $23,851 to $96,950
- 22%: $96,951 to $206,700
- 24%: $206,701 to $394,600
- 32%: $394,601 to $501,050
- 35%: $501,051 to $751,600
- 37%: $751,601 and above
Head of Household:
- 10%: Up to $17,000
- 12%: $17,001 to $64,850
- 22%: $64,851 to $103,350
- 24%: $103,351 to $197,300
- 32%: $197,301 to $250,500
- 35%: $250,501 to $626,350
- 37%: $626,351 and above
How the Tax Brackets Work
Before we dive into details regarding tax brackets, there are a couple of facts that you need to understand. Being in a particular tax bracket does not mean your entire income is taxed at that rate. Instead, the IRS applies marginal tax rates, where each portion of your income falls into different brackets.
For example, if you are a single filer earning $50,000 in 2024, the first $11,600 is taxed at 10%, while the next portion up to $47,150 is taxed at 12%. The remaining income between $47,151 and $50,000 falls into the 22% bracket, meaning only a small portion of your income is subject to that higher tax bracket. Understanding your highest tax bracket is crucial as it determines how additional income will be taxed in the upcoming tax year.
Standard Deductions and Their Impact
Before taxable income is calculated, you can reduce your earnings by claiming tax deductions, such as the standard deduction. In 2024, single filers can deduct $14,600 from their income, while married couples filing jointly can subtract $29,200. Head-of-household filers have a standard deduction of $21,900. These amounts will increase slightly in 2025, helping taxpayers reduce the amount of income subject to federal tax. If you’re wandering how to save money, tax deductions are one of the most important methods for any working adult.
Earned Income Tax Credit (EITC) for 2024
The Earned Income Tax Credit is a refundable credit designed to assist low- to moderate-income workers. In 2024, eligible taxpayers with three or more qualifying children can receive a credit of up to $7,830.
The maximum credit amount will increase in 2025, allowing taxpayers with the same number of children to claim up to $8,046. Eligibility depends on factors such as income, filing status, and the number of dependents. Also, make sure you check out our CashYeah guide on how to build credit!
What does 22% federal tax bracket mean?
Many taxpayers wonder what it means to be in the 22% federal tax bracket. This does not mean all of your income is taxed at 22%, but rather that any portion of your earnings falling within that range is subject to the rate. If your taxable income places you in the 22% bracket, a portion of your earnings will still be taxed at 10% or 12% based on the marginal tax rate structure.
How to Stay in the 12% Tax Bracket
If you want to keep your income within the 12% tax bracket, taking advantage of tax cuts can be beneficial. Reducing taxable earnings through deductions and credits can directly impact your tax bill. It’s a crucial skill, if you’re learning how to budget.
Contributing to retirement accounts such as a 401(k) or an IRA lowers your taxable income. Charitable donations, business expenses, and other deductions can also help keep you in a lower bracket. If you’re close to the upper limit of the 12% bracket, careful tax planning can ensure that additional income does not push you into a higher tax rate.
Gift Tax Limits for 2025
One of the ways in which people avoid landing in the higher tax brackets is simply gifting away a portion of their income in charitable donations. In many cases, donating to a charity might be the more financialy reasonable choice, as the donation might be lower than what you’d pay if you find yourself in a higher tax bracket, effectively helping to stop wasting money. In order to prevent people from abusing this method, there are set gift tax limits.
For those considering large financial gifts, the annual gift tax exclusion for 2025 will be $19,000 per recipient, an increase from the 2024 limit of $18,000. This means you can give up to this amount to any individual without triggering the federal gift tax. Larger gifts may require you to file a gift tax return, though most individuals will not owe taxes unless their lifetime gifts exceed the federal exemption.
Estimating Your Federal Tax Liability
As we’ve already mentioned, income tax rates in the U.S. federal progressive tax system mean that different portions of your income are taxed at varying rates, not the highest rate on your entire income.
The marginal tax rates ensure that a portion of your income is taxed at lower rates before reaching higher brackets. For someone making $200,000, their tax liability will be more complex, with portions of their income falling into multiple brackets. Calculating your federal income tax requires accounting for deductions, credits, and how income is distributed across the brackets.
In Conclusion
As you can see, the tax system in the US is quite complex, but we’ve our guidance we hope you have a slightly clearer understanding. If you enjoyed this article, make sure to check out the rest of our blog, where we regularly post more tips, tricks and financial guides!
