The U.S. government determines tax rates based on each individual’s income level. These different income taxable rates are classified into brackets or layers called tax brackets. Understanding the tax bracket is crucial in knowing where you’re positioned and which corresponding tax rates apply to you. Read on as we explore the question, “What is a tax bracket?”, and what factors impact your tax bracket and liability.
Understanding the Tax Bracket System
What is a Tax Bracket?
A tax bracket is a range of taxable income and corresponding tax rates organized into layers or brackets. These tax rates can range from 10% to 37%. For example, if you have $10,000 of taxable income, a 10% tax rate applies to you. We’ll discuss these tax rates in the next sections.
The Progressive Nature of Tax Brackets
The U.S. implements progressive taxation, which means tax rates increase with income levels. The higher your income level is, the higher your tax rate is. However, regardless of which bracket you fall into, you will not pay that tax rate on all of your income. Only a portion of your income is subject to your highest tax rates. To understand this, let’s first look at the 7 tax brackets (for this year) for individual filers. Then, we’ll give an example of how our previous statement works.
The 7 tax brackets for individual filers are as follows:
| Tax Rate | Taxable Income For Single Filers |
| 10% | $0 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 or more. |
So, for example, if you have $60,000 of taxable income in 2024, you would need to pay 10% on the first $11,925 and 12% on the income between $11,926 and $48,475. You pay 22% for the rest because some of your $60,000 goes into the 22% bracket.
With this progressive tax system, your total tax bill is $8,253, or about 13.76% of your taxable income, even though you fall into the 22% tax bracket. Therefore, your effective tax rate is 13.76%.
Federal Tax Brackets for 2025
Breakdown of the 2025 Federal Tax Brackets
On October 22nd, the IRS announced the annual inflation adjustment that changes tax brackets for 2025.
2025 Single Filer Tax Bracket
| Tax Rate | Taxable Income |
| 10% | $0 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 or more. |
2025 Married Filing Tax Bracket
| Tax Rate | Taxable Income |
| 10% | $0 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 or more. |
2025 Head of Household Tax Bracket
| Tax Rate | Taxable Income |
| 10% | $0 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 or more. |
How to Calculate Your Taxable Income
You must understand the difference between taxable income and gross income to calculate your taxable income.
A taxable income is the portion of your income subject to taxation after deducting deductions and exemptions. Gross income is the total amount earned before any deductions.
To calculate your taxable income, add all sources of income (wages, salaries, tips, interest, etc.). Then, subtract the total from any income adjustments, such as IRA contributions or student loans. The new figure is your Adjusted Gross Income (AGI). Next, subtract any deductions you are eligible for (either standard or itemized), such as mortgage interest, local and state taxes, medical or business expenses, and, if applicable, exemptions. Your taxable income is the amount that remains after all these deductions.
How Tax Brackets Affect Your Tax Liability
Marginal vs. Effective Tax Rate
The effective tax rate is the average tax rate you pay based on your taxable income. You get an effective tax rate by dividing your total tax by your taxable income and multiplying by 100. The marginal tax rate, on the other hand, is the tax rate you pay on the highest portion of your income. As such, your effective tax rate will be lower than your marginal tax rate because some of your income is taxed at lower rates.
How Your Tax Bracket Determines Your Tax Liability
Which bracket you fall into determines your tax liability or the amount of tax you must pay. As previously stated, under the progressive tax system, the higher your income level, the higher your tax rate. Use the tax bracket to determine which bracket you fall into, and then use the calculations we’ve provided above to calculate how much tax you must pay. Understanding how your tax bracket works allows you to plan more effectively, especially if you are considering additional income or tax-saving strategies such as deductions and credits.
Understanding the Impact of Deductions and Credits
Deductions and credits are effective tax-saving strategies. Credits can lower your tax bill on a dollar-to-dollar basis, but they do not affect which bracket you are in. In contrast, deductions such as retirement savings can reduce taxable income. For example, if you are in the 22% tax bracket, a $1000 deduction can save you $220. By taking advantage of all available deductions, you can reduce your taxable income and thus move into a lower tax bracket, allowing you to pay lower taxes.
Factors that Can Impact Your Tax Bracket
Other important factors impacting your tax bracket are filing status, adjustment to income (AGI), and state income taxes.
Your filing status will also determine which income threshold you fall into. A single and a married filer or head of household have different rates. For example, a single filer enters 12% tax rates at $11,926, while a head of household enters the same bracket at $17,001 (2025 tax bracket). Choosing the correct filing status can help you get the most favorable tax rates.
Your Adjustment to Income (AGI) is your total income minus any adjustments. Some common adjustments are Health Saving Account (HSA) contributions, Retirement accounts, and Student loan interest payments. By making these contributions, you can reduce your AGI and keep more of your income within a lower tax bracket.
Lastly, it is important to note that different states have different income taxes. For example, some states apply a flat rate tax, which means a single rate applies to all taxable income. Some states, like Florida, do not have state income taxes. These different tax regulations will affect your overall tax burden. Therefore, factor in state income taxes when creating your overall tax strategy.
How Greenberg Law Group P.A. Can Help You Understand and Manage Your Tax Bracket
Determining your tax brackets and your tax liability is a challenge in itself. Everyone wants the most favorable tax rates. Correct filing status, accurately calculating your effective and marginal tax rates, claiming the appropriate deductions and credits, and understanding your state’s income taxes are all critical factors in reducing your tax burden and obtaining the most favorable outcome specific to your tax situation.
This is where Greenberg Law Group, P.A. can assist. If you are unsure about your tax situation, Greenberg Law is your go-to partner for everything tax!
Get in touch with us today to start taking the right steps for your tax strategic decision and start making significant savings on your taxes.
