What Is the Federal Income Tax Rate & How Does It Work?

Understanding federal income tax rates is essential for managing your finances and maximizing your savings. 

Whether you’re a small business owner or an individual taxpayer, knowing how tax brackets work and how your income is going to be taxed can help you make smarter financial decisions. 

Let’s break down the basics of federal income tax rates and how they impact you so you can optimize your tax strategy, reduce your tax bill, and keep more of what you earn.

Key takeaways

• Income tax rates range from 10% to 37%.
• The US uses a progressive tax system, meaning the more you earn, the more you’re taxed.
• Income tax rates are applied via tax brackets, which are based on income thresholds.
• Your marginal tax rate is the highest tax rate that applies to you.
• Your effective tax rate is the average rate you pay on your taxable income as a whole.

How do federal income tax rates work?

In the US, income tax rates are progressive. Your income tax rate is determined by how much taxable income you have and your filing status. With a progressive tax system, the more you make, the higher your income tax rate will be. For most people, this means as you grow in your career and get raises, you’ll pay more taxes.

So, how do you know how much tax you’ll pay?

Progressive federal income tax rates are set using tax brackets. Each tax bracket has its own federal income tax rate. Based on your filing status, you can look at the income thresholds for each tax bracket to see which apply to you.

While the standard income tax rates themselves remain fairly consistent, the federal income tax bracket thresholds that correspond with those rates typically change every year. This is because the IRS adjusts rates to align with changes in the cost of living.

That also means you can’t simply look up tax rates once and use that as a basis for how much you can expect to pay in taxes each year.

What is the federal income tax rate?

The federal income tax rates are:

• 10%
• 12%
• 22%
• 24%
• 32%
• 35%
• 37%

Knowing the income tax rates doesn’t tell you much. What really matters is what tax brackets you fall into based on your income and filing status. Let’s take a closer look at the rates for federal taxes in 2024 and 2025.

2024 Tax brackets

In 2024, the top tax rate of 37% is the same as it was the previous year. This tax rate applies to any single taxpayer with taxable income of at least $609,351. For married couples filing jointly, the taxable income threshold is at least $731,201.

The lowest income tax rate for 2024 is 10%, which applies to single taxpayers with taxable income of $11,600 or less. This threshold increases to $23,200 for married couples filing jointly.

The other tax brackets and rates for 2024 are:

• 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
• 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
• 24% for incomes over $100,525 ($201,050 for married couples filing jointly)
• 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
• 12% for incomes over $11,600 ($23,200 for married couples filing jointly)

2025 Tax brackets

Recently, the IRS announced the 2025 tax year brackets. These tax rates apply to taxes filed in 2026.

The 2025 tax brackets are slightly different from the 2024 tax brackets, but the rates remain the same. The top tax rate for the 2025 tax year is 37%. This tax rate applies to single taxpayers with a taxable income of at least $626,351, or $751,601 for married couples filing jointly.

For 2025, the lowest federal income tax rate remains at 10%. This tax rate applies to single taxpayers with incomes of $11,925 or less, which increases to $23,850 or less for married couples filing jointly.

The other income tax rates for the 2025 tax year are:

• 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)

Note that the income tax rate for self-employed filers is different from standard income tax brackets and is currently 15.3%. This tax includes the 12.4% Social Security tax and the 2.9% Medicare tax. Self-employed filers are subject to self-employment tax if they have net earnings of $400 or more per year. 

Marginal vs. effective tax rates

As we mentioned above, there is typically not just one federal income tax rate that applies to you under the progressive tax rate system. Instead, there are marginal and effective tax rates. 

Your marginal tax rate is the highest tax rate that applies to you, while your effective tax rate is the average rate you pay on your taxable income. These rates don’t account for other types of taxes like property taxes, for example.

Income tax rates are determined by your taxable income, but the highest rate only applies to a portion of your taxable income. For example, let’s say you have $110,000 in taxable income for 2024 and are filing single. Your marginal tax rate would be the highest rate that applies to you (24% in this case), but that rate only applies to $9,475 of your taxable income ($110,000 – $100,525 = $9,475).

To find your effective tax rate, you’ll take your total tax and divide it by taxable income. To do that, you’ll use Form 1040 to find your total tax shown on line 24 and divide it by your taxable income found on line 15. Once you have that number, multiply it by 100 to get your effective tax rate percentage.

Let’s take the same income applied to the above but calculate your effective tax rate. If you have $110,000 in taxable income and total tax of $40,000, you would divide $40,000 by $110,000, which is 0.36. To get your effective tax rate percentage, multiply 0.36 x 100, which is 36%.

Calculating your effective tax rate can give you a more realistic understanding of how much income tax you’ll be responsible for in total.

Are federal income tax rates different from state rates?

Yes, federal income tax rates are different from state income tax rates. State income tax rates are typically much lower than federal tax rates.

A handful of states, including California and New York, are among the highest in terms of marginal income tax rates. However, there are several states that have no state income tax, including:

• Alaska
• Florida
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

New Hampshire only taxes interest and dividend income.

What factors impact income tax rates in the US?

Tax brackets and federal income tax rates in the US are impacted by several factors.

Inflation is the biggest factor affecting how much federal income tax you pay each year. The IRS takes the current cost of living into consideration to make annual adjustments to the tax brackets and income tax rates accordingly.

As the cost of living typically rises year after year, income thresholds for tax brackets tend to change each year. While the standard tax rates for income taxes have remained unchanged since the 2018 tax year, the income limits for each bracket have been adjusted.

The IRS also typically adjusts the standard deduction and tax credits each year. As a result, your final tax bill may change from year to year, even if you’re in the same tax bracket and paying the same income tax rate.

How to minimize your tax bill 

Tax planning is a key part of minimizing your tax bill each year. There are even a few strategies you can use to save on your taxes.

Start by maximizing your deductions to reduce your taxable income. While the standard deduction is a better option for some people, you may save more by claiming the itemized deduction and deducting things like medical expenses, mortgage interest, state and local taxes, charitable gifts, and property taxes.

There are also tax credits that can save you money. Unlike deductions, which are subtracted from your taxable income, tax credits are applied directly to your tax bill, reducing how much you owe and potentially qualifying you for a refund.

Some popular tax credits include:

• American Opportunity Tax Credit (AOTC)
• Child Tax Credit
• Child and Dependent Care Tax Credit (CDCC)
• Earned Income Tax Credit (EITC)
• Retirement Savings Contributions Credit (Saver’s Credit)

Need help planning for your income taxes? A tax professional can help you prepare and file your taxes, as well as answer any questions you might have about income tax filing requirements.