2025 Tax Brackets

As we approach the tax season for 2025, it's important for individuals and families to understand how federal tax brackets work and how they will impact your tax bill. The IRS has already announced the updated tax brackets for the year 2025, and understanding these rates is essential for effective financial planning. Here's a breakdown of the tax brackets for 2025, along with an explanation of how they work.

The 2025 Federal Tax Brackets

The U.S. income tax system is graduated, meaning the more you earn, the higher your tax rate on the income that falls within each bracket. In other words, not all of your income is taxed at the same rate. Instead, the income is taxed in segments—each portion of your income is taxed according to the rate that applies to the bracket it falls into.

Here are the 2025 Federal Tax Bracket Thresholds (from IRS.gov):

• 37% for incomes greater than $626,350 ($751,600 for married couples filing jointly).

• 35% for incomes over $250,525 ($501,050 for married couples filing jointly).

• 32% for incomes over $197,300 ($394,600 for married couples filing jointly).

• 24% for incomes over $103,350 ($206,700 for married couples filing jointly).

• 22% for incomes over $48,475 ($96,950 for married couples filing jointly).

• 12% for incomes over $11,925 ($23,850 for married couples filing jointly).

• 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).

How the Graduated Tax Brackets Work

The federal income tax system in the U.S. is progressive, meaning it taxes different portions of your income at different rates. Here's how the graduated tax brackets work:

1. The First Dollar You Earn: When you earn income, the first part of your income is taxed at the lowest rate (10%). For a single filer, that means the first $11,925 is taxed at 10% in 2025.

2. Income Above the First Threshold: Once you exceed $11,925, only the income above that threshold is taxed at the next rate—12%. So, if you're a single filer earning $55,000, you would pay:

   • 10% on the first $11,925

   • 12% on the amount from $11,926 to $48,475

   • 22% on the amount from $48,476 to $55,000

3. Higher Incomes: As your income grows, more of it is taxed at higher rates. But remember, you never pay the higher rate on your entire income. For example, if you're a married couple filing jointly with an income of $200,000, your income isn’t taxed at 24% on the entire amount—only the portion above the $206,700 threshold.

Tax Planning

If you know at the beginning of the year approximately what you will earn and what the thresholds are for the tax brackets, there are some things you can do to legally avoid paying the higher tax rate.

1. Contribute to Tax-Advantaged Accounts

• Retirement Accounts: Contributions to traditional IRAs, 401(k)s, 403(b)s, or 457(b)s reduce your taxable income in the year you make them. For example:

  • In 2025, you can contribute up to $23,000 ($30,500 if 50 or older) to a 401(k), 403(b) and/or 457(b).

  • Traditional IRA contributions may also be tax-deductible, depending on income and workplace retirement plan availability.

• Health Savings Accounts (HSAs):

  • If you have a high-deductible health plan, you can contribute pre-tax dollars to an HSA. For 2025, the contribution limit is $4,300 for individuals and $8,550 for families.

  • Withdrawals for qualified medical expenses are tax-free.

2. Use Tax Deductions and Credits

• Itemized Deductions:

  • If itemizing reduces your taxable income more than the standard deduction, consider deducting expenses such as mortgage interest, state/local taxes, or charitable donations.

• Tax Credits:

  • Credits like the Earned Income Tax Credit (EITC), Child Tax Credit, or education credits (e.g., the American Opportunity Credit) directly reduce your tax bill, making them more impactful than deductions.

3. Defer Income or Harvest Losses

• Income Deferral:

  • If possible, defer income (e.g., year-end bonuses) to the following year, especially if you anticipate being in a lower tax bracket.

• Tax-Loss Harvesting:

  • Offset capital gains with capital losses from investments. Up to $3,000 of losses can also offset ordinary income annually, reducing taxable income.

Key Takeaways

The graduated nature of the U.S. tax brackets means that the more you earn, the more you will pay in taxes—but only on the income that falls within the higher tax ranges. Understanding the 2025 tax brackets can help you make smarter decisions about deductions, credits, and investments to minimize your tax burden and maximize your financial strategy for the year.

By staying informed about tax changes and leveraging tax planning strategies, you can take control of your finances and ensure that you're paying the right amount—no more, no less. Do you want some help in 2025? Contact Venables Financial Solutions today!