2025 Marginal Tax Rates and Definition

Whether it is the start of a new tax year or the end of one, it is always a good time to acquaint yourself with the latest federal tax brackets. These vary from year to year because the Internal Revenue Service (IRS) adjusts them annually to account for changes in the cost of living. Because these changes may impact your tax payment strategy, it is important to stay updated on the latest tax rates. Before you file your taxes, this is what you need to know about the marginal tax rates for the tax year 2025. 

A financial advisor who offers tax services can help you with tax planning to best protect your assets.

What Is a Marginal Tax Rate?

A marginal tax rate is the amount of additional tax you incur for added levels of income. The United States imposes a progressive tax system, so the more you earn, the higher the tax bracket for your income. The exact range then determines the tax rate you effectively pay, although normally, those earning more income face a greater tax burden. This means that you keep a smaller amount of money per dollar earned.

Your marginal tax rate solely applies to your taxable income. It is calculated by  subtracting your standard or itemized deductions from your annual gross income.

However, it is not taxed at a flat rate. For example, suppose you earn $110,000 in taxable income during 2025. While an annual taxable income of $110,000 puts single filers in the 24% tax bracket, that does not mean you would get hit with a 24% tax bill. Marginal tax rates only apply to the portion of income that falls directly within that bracket.

To illustrate, let’s say you earn $12,000 in taxable income in 2025, which puts you in the 12% marginal tax bracket. As a result, you would pay 10% on the first $11,925 in taxable income ($1,192.50). You would then pay 12% on the remaining $75 of income (the 12% tax bracket runs from $11,925 to $48,475). That would add $9 to your tax bill, leaving you to pay $1,201.50 in federal income tax.

SmartAsset’s federal income tax calculator can help you estimate your taxes for an investment.

Marginal Tax Rate vs. Effective Tax Rate

Both marginal and effective tax rates help taxpayers find out how much they owe the IRS, although effective tax rates differ slightly. 

Effective tax rates are based on your annual income and your total income tax liability. To find yours, simply take the latter and divide it by your gross annual income. The result is the percentage of annual income you should pay in taxes.

For instance, if a person has $150,000 in taxable income in 2025, they would pay the IRS $28,847 in taxes. As a result, their effective tax rate would be 19%, meaning this person paid 19% of their income in taxes.

In contrast, marginal rates are progressive and include seven tax brackets. Generally, the more you earn, the more likely you are to use marginal rates as your measurement tool. If you find your income falls into one of the lower brackets, you can probably use the effective rate more reliably.

2025 Marginal Tax Rates

Marginal tax rates include seven brackets 10%, 12%, 22%, 24%, 32%, 35% and 37%. Where you fall will depend on your filing status (single, married couple filing jointly, head of household) and the amount of income you earn yearly.

Here are the marginal tax rates for 2025, which you will pay in 2026:

Marginal Tax Rates for 2025

For a comparison, here are the marginal tax rates for 2024, which are paid in 2025:

Marginal Tax Rates for 2024

Remember, marginal tax rates do not use a fixed percentage across your total income. Instead, you portion out your income as it falls within each tax bracket and then you pay the corresponding rate on that specific range of income. That way, your first dollars receive the lowest rate, and the last portion receive the highest.

Ways to Cut Your Tax Bill

There are a few ways you can reduce your taxable income. The right method may depend on your financial and personal situation, though. Some suggestions worth consideration are:

Set up a College Savings Fund

For example, some can reduce their tax bill by creating a college savings fund. When you contribute to a 529 plan, you can possibly benefit from state-level tax deductions. Furthermore, distributions and earnings made through the account grow tax-free when you use them for qualified expenses.

Save for Retirement

Retirement accounts provide similar opportunities. When you fund accounts like 401(k)s and IRAs, you do so with pre-tax dollars. Therefore, contributing to them lowers your taxable income for the year. Health savings accounts (HSA) allow you to take advantage of the same benefit but for medical expenses, as well.

Make a Charitable Contribution

For tax years 2025, the IRS has allowed taxpayers to make charitable contributions to reduce their tax bills. Donating assets or cash to a qualified nonprofit organization allows you to lower your taxable income amount. This requires you to itemize your tax deductions, though.

Harvest Investment Losses

Tax-loss harvesting is a strategy investors often use to limit their short-term capital gains, thereby offsetting their tax liability. Essentially, you sell off investments that have an unrealized loss and report those losses. That can help reduce your tax bill significantly, as short-term capital gains may receive higher tax rates than long-term capital gains.

Short-term gains tend to equal your regular tax bracket rate, whereas a long-term gain tax rate is either 0%, 15% or 20%.

Use Tax Credits

There are various tax credits available that offer a dollar-for-dollar reduction on the taxes you owe, not just your taxable income. They may apply on a federal or state level, depending on their type. 

Since they can vary, they are able to help a wide range of citizens. For example, families who adopt children can use the federal adoption credit to offset the costs of adoption.

Contribute to an HSA

Contributing to a health savings account (HSA) offers several tax advantages, including lowering your taxable income for the year in which contributions are made. 

For 2025, the HSA contribution limits are $4,300 for individuals and $8,550 for families. As an example, an individual could deduct up to $4,300 from their income in 2025, lowering their eventual tax liability. Individuals aged 55 or older can also make an additional catch-up contribution of $1,000, further bolstering the tax benefit of using an HSA.

Bottom Line

While it would be nice if the rules of taxation stayed the same year to year, they often do not. They are subject to change due to factors like current events and inflation. Therefore, it is vital to review the requirements before tax season rolls around. Knowing and planning for your rate of taxation can help you plan your finances more effectively.

Tips for Filing Your Taxes

• A well-planned tax strategy can help you save funds every year. That’s where a financial advisor comes in. They can help you find the right tax plan for your situation. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Understanding your finances is key to an airtight tax strategy. Using our tax calculators, like the federal income tax calculator and property tax calculator, you can plan ahead and achieve your goals.
• It’s also recommended to check out the best tax filing software available. With technology on your side, you can smooth out the entire process.

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