Understanding income tax brackets is essential for effective tax planning. Here’s a breakdown of how tax brackets work in the USA for 2025.
1. What Are Tax Brackets?
Tax brackets determine the percentage of your income taxed at different levels. The more you earn, the higher your marginal tax rate.
2. Federal Tax Brackets
The IRS uses progressive tax rates, ranging from 10% to 37%. For example:
- Income up to $11,000: 10%.
- Income between $11,001 and $44,725: 12%.
- Income above $44,726: Higher rates.
3. State Income Taxes
State taxes vary. Some states have flat rates, while others use progressive systems.
Conclusion:
Understanding tax brackets helps you calculate your effective tax rate and plan deductions to stay in lower brackets.