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In the United States' federal tax system, tax brackets help determine the rate at which an individual's income is taxed. They work by dividing each taxpayer’s income into buckets, each taxed at a progressively higher rate.

The bad news is that tax brackets (as opposed to a flat tax rate) make it harder to know your overall tax rate without doing any math. The good news is that it gives you an opportunity to anticipate your potential tax liability and possibly reduce the amount you owe by strategically keeping more of your income in lower brackets.

Tax planning is a critical component of optimizing your overall financial strategy. And understanding how brackets work and how they change from year to year is a great place to start.

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Overview of the 2025 tax brackets

Federal income tax brackets for 2025

As in prior years, there are seven tax brackets for individual “regular” income: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income ranges that fall into each bracket vary depending on the taxpayer's filing status – single, married filing jointly, or head of household.

For example, for single filers, the 12% bracket starts at a lower threshold while, for married couples filing jointly, the same bracket covers a wider range. Meanwhile, heads of household can benefit from higher income thresholds that acknowledge the additional financial responsibilities they carry.

The brackets, therefore, are meant to ensure that taxpayers pay their fair share according to their financial capacities and to accommodate varying household situations. (As with the different tax brackets, different filing statuses can potentially give you tax planning opportunities, though most tax professionals wouldn’t necessarily recommend a change of marital status or having a child for the tax break.)

Here are the bracket ranges for 2025.

Source: IRS.gov

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Changes from previous years

The major change to tax brackets in 2025 is the inflation adjustments that account for prices and wages increasing over time. As a result, for 2025, the income thresholds for each tax bracket have shifted slightly upward.

Say you earned just below a tax bracket cutoff last year – for example, $45,000 as a single filer – and the raise you earned this year means you’ll now be above it, even with the tax bracket inflation adjustment – let’s say a new salary of $50,000. Does this mean you’re in for a much bigger tax bill with a leap from the 12% to the 22% bracket? No. We’ll explain how the progressive system works and what people often misunderstand about it.

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How tax brackets work

Progressive tax system

A progressive tax system is designed to ensure that taxpayers with higher incomes pay a larger percentage in taxes than those with lower incomes.

In practice, a taxpayer’s income is divided into segments or brackets, each taxed at its own progressively higher rate. For instance, under the 2025 federal tax system, the first portion of a taxpayer’s regular income is taxed at 10%, the next segment at 12%, and so on, up to the highest bracket of 37%.

Example calculations

Let’s return to our single filer whose taxable income is $50,000 and look at a simplified example of how the brackets work for them.

• The first $11,925 of their income would be taxed at the lowest bracket of 10%. That’s $1,193 in tax.
• The next $36,550 (the amount of income in the second bracket) would be taxed at 12%, for an additional $4,386 in tax.
• Finally, the last $1,525 would be taxed at 22%, for tax of $335, and a grand total of $5,914.

Thus, while this taxpayer’s “marginal” (highest) rate is 22%, their effective tax rate is about 11.8% ($5,914/$50,000).

We mentioned this is a simplified example because the current tax system allows tax filers to first deduct either a standard deduction or itemized deductions, as well as some other types of deductions from their income before calculating the tax due. And there are also credits that can lower your tax due after you calculate it. So this example represents someone who has a taxable income of $50,000 after any applicable deductions and before any credits have been removed.

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Impact of 2025 tax brackets on taxpayers

Getting ahead of the Tax Cuts and Jobs Act sunset

The bracket changes for 2025 are small and likely won’t have a big impact on most taxpayers, although it’s always worth consulting with a financial planner to see if there’s something you’re missing.

But there may be much bigger tax changes around the corner. The current tax rates are in place only though the end of 2025 (barring additional legislation this year) and will then revert to the previous rates that were in effect prior to the 2017 Tax Cuts and Jobs Act.

Those rates are generally higher than the current rates, and there are many other potential changes that come with the expiration of the TCJA. They include much smaller standard deductions, additional exemptions, the end of the $10,000 cap on state and local tax deduction and a much smaller estate tax lifetime exemption.

We don’t recommend making any changes based on unknowns. But it’s smart to make sure you understand what could change and how it would affect you, and to work with a financial planner and your tax professional on strategies that you can implement under different scenarios.

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Planning for the 2025 tax year

Tax planning tips

As we’ve covered, the less income you have, the less tax you pay. You don’t want to take a lower-paying job just to avoid taxes, but there are some ways to help reduce the amount of your income that’s subject to tax.

Make contributions to accounts that offer a tax deduction. Start with your retirement account (whether it’s a 401k, 403b, solo 401k, or SEP or SIMPLE IRA) and then see whether you’d be eligible to make deductible IRA contributions as well. Then likewise, if you’re eligible, consider making HSA contributions.

Maximize your deductions – work with a tax professional to determine whether you should take the standard deduction or itemize deductions like your mortgage interest, state and property taxes, and charitable contributions.

If the TCJA expires and standard deductions go back to prior levels, many more people will benefit from itemizing instead. It may be worth holding off on charitable contributions later this year and moving them into early 2026 instead in that case. This could also be true of medical procedures if you qualify to deduct medical costs.

Make sure you know what tax credits you qualify for. If you have children, go to college (or pay for someone else to), pay for insurance bought on the marketplace or have made energy-efficient purchases, there might be a credit for you.

Finally, make tax-smart investing decisions. For example, look at the kinds of income your investments are throwing off and how they’re taxed. Interest is taxed more heavily than some kinds of dividends and capital gains, which are taxed less when you’ve held the investments longer. Municipal bond interest may not be taxed at all. You can help minimize taxes by being strategic about where and how long you hold your investments.

Consulting a tax professional

We recommend working with a tax professional. Their guidance can help you identify all available deductions, credits and strategies you might otherwise overlook. It could be especially helpful this year given everything that might change at the end of 2025.

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Speak to a planner to optimize your tax planning strategy

Our financial advisors and tax planning experts can also help with tax-smart strategies.

By familiarizing yourself with the various brackets and income thresholds, you can plan more efficiently, better anticipate your tax liabilities and explore options for potential deductions and credits. Reach out if you need guidance from a financial advisor��– we’re here to help.