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With each new tax year, federal income tax brackets are adjusted for inflation, impacting how much of your income falls under each tax rate. For 2025, these changes mean that income thresholds have shifted, potentially affecting the amount of taxes you owe. Understanding your tax bracket is essential, as it can influence your deductions, credits, and overall tax strategy for the year.
The 2025 tax brackets vary by filing status. Below are the income thresholds for each bracket, helping you determine where your income fits within the marginal tax rates.
For 2025, tax brackets have been adjusted upward due to inflation. This shift means that income thresholds for each bracket are slightly higher, reducing the chances that taxpayers will face “bracket creep,” where inflation-driven income increases push them into higher tax brackets despite no real increase in purchasing power.
The U.S. tax system uses a progressive structure, meaning income is taxed at increasing rates across brackets. For example, if a single filer earns $50,000, only the portion within each bracket is taxed at that rate—10% on income up to $11,610, 12% from $11,610 to $47,060, and 22% above $47,060. This ensures that only income in higher brackets is subject to higher rates, keeping the taxpayer’s effective tax rate lower than the top marginal rate.
The marginal tax rate is the highest bracket applicable to your income, while the effective tax rate is the average rate paid on total income. For example, if a taxpayer’s total tax is $8,000 on $50,000 income, their effective tax rate is 16% ($8,000 ÷ $50,000), lower than the marginal rate of 22%.
For 2025, the standard deduction has increased across all filing statuses to help taxpayers reduce taxable income. These increases allow taxpayers to exclude a larger portion of their income from taxes, often making the standard deduction more beneficial than itemizing for many filers.
Seniors over age 65 can claim an additional standard deduction of $2,000 as single filers or $1,600 as joint filers.
The Alternative Minimum Tax (AMT) is a separate tax system designed to ensure that high-income individuals and certain corporations pay a minimum level of tax, even if they qualify for deductions and credits that significantly lower their regular tax liability. Unlike the standard tax calculation, the AMT disallows several deductions and exemptions, calculating taxable income differently. Taxpayers are required to calculate their tax bill twice—once under the regular income tax system and once under the AMT—and must pay whichever amount is higher.
To prevent moderate-income taxpayers from being impacted, the AMT provides an exemption amount that reduces the income subject to AMT. For the tax year 2025, those exemptions are the following:
These exemptions mean that only income exceeding these thresholds is subject to AMT, with phase-outs gradually reducing the benefit as income increases. This exemption is essential to prevent unintended AMT liability for moderate- to high-income taxpayers who might otherwise be subject to this tax due to their use of deductions.
Tip: If your income is close to the phase-out threshold or you claim multiple deductions, consult with a tax advisor to determine if the AMT may apply and how best to plan around it.
Various tax credits have updated limits in 2025, providing tax relief based on income and family size.
The Earned Income Tax Credit (EITC) is a refundable tax credit aimed at providing financial relief to low- to moderate-income working individuals and families, particularly those with children. The credit amount varies based on income, filing status, and the number of qualifying children, with higher credits available to families with more children. Because the EITC is refundable, eligible taxpayers can receive a refund even if their tax liability is zero, making it a valuable benefit for households with limited income.
In 2025, taxpayers with three or more qualifying children can get up to $8,046. This is a rise from $7,830 in 2024.
The Adoption Tax Credit is a non-refundable tax credit designed to assist taxpayers with the costs associated with adopting a child. For tax year 2025, the credit covers qualified adoption expenses up to a certain limit, which typically includes adoption fees, court costs, attorney fees, and travel expenses. The credit applies to both domestic and international adoptions, though the timing and eligibility for claiming the credit can vary. Because it is non-refundable, the Adoption Tax Credit can reduce the amount of tax owed to zero, but any remaining credit cannot result in a refund. However, unused portions of the credit can often be carried forward to future tax years. This credit aims to make adoption more accessible by offsetting the often significant financial costs.
For 2025, the maximum credit for adopting a child with special needs is the amount of qualified adoption expenses, up to $17,280. This is up from $16,810 for 2024.
The Dependent Care Credit helps offset the cost of care for children under 13 and other dependents. For 2025, the credit applies to a percentage of expenses up to $3,000 for one dependent and $6,000 for two or more dependents, with the percentage based on adjusted gross income (AGI). Lower-income earners receive a larger percentage, while the credit phases out at higher income levels. This credit is non-refundable, meaning it can reduce taxes owed but does not result in a refund.
The Estate Tax is a federal tax on the transfer of wealth upon a person’s death, applied to the total value of the deceased person’s assets, including cash, real estate, stocks, and other valuable property. This tax is only imposed on estates that exceed a certain exemption threshold, which is adjusted annually for inflation. For estates exceeding this threshold, tax rates can be significant, although the estate’s beneficiaries are typically not responsible for paying this tax directly; instead, the tax is paid from the estate itself before assets are distributed. The estate tax primarily affects high-net-worth individuals, serving as a measure to limit wealth concentration and generate revenue from large inheritances. Proper estate planning, including trusts and gifts, can often help reduce or eliminate estate tax liability for beneficiaries.
Estates of decedents who die in 2025 have a $13,990,000 basic exclusion amount, up from $13,610,000 for those who died in 2024.
The Tax Cuts and Jobs Act (TCJA) introduced temporary changes to the tax code in 2017, and many of these provisions are set to expire at the end of 2025. Here’s an overview of key changes and their impact:
These changes will likely increase tax liability and complexity for many taxpayers, especially self-employed individuals and those with high state and local taxes. Unless extended, taxpayers may need to adjust their planning strategies in preparation for these expirations.
Self-employed individuals face unique tax considerations, as their income often fluctuates, and they are responsible for both income tax and self-employment tax. Here’s how the 2025 tax brackets affect self-employed taxpayers and what you can do to optimize your tax strategy:
Since self-employed individuals don’t have taxes withheld from regular paychecks, they are required to make quarterly estimated tax payments. Using the 2025 tax brackets as a guide, calculate your income and expected tax liability each quarter to avoid underpayment penalties and stay within your target bracket.
Reducing taxable income is essential for managing tax liability, especially as self-employed income fluctuates. Key deductions, such as the home office deduction, mileage deduction, and business-related expenses, can lower your taxable income, potentially keeping you in a lower tax bracket. Everlance can help you track these expenses accurately throughout the year to maximize your deductions.
Self-employed individuals and small business owners may be eligible for the QBI deduction, which allows you to deduct up to 20% of qualified business income. However, this deduction phases out at higher income levels based on the 2025 tax brackets. By accurately tracking and managing income, you can strategically plan to stay within QBI deduction limits, maximizing your savings.
In addition to regular income tax, self-employed individuals pay self-employment tax (covering Social Security and Medicare). While the income tax brackets don’t directly affect self-employment tax, staying mindful of your overall tax liability, including both income and self-employment taxes, can help you prepare and plan effectively.
With income brackets and deductions for 2025, self-employed individuals should consider strategies to manage taxable income—such as deferring income to the next year, if possible, or accelerating deductions. These tactics can help you optimize your tax situation and make the most of the current tax brackets.
Tax Tip: Accurate, real-time tracking of business expenses is key to lowering your tax burden. With Everlance, self-employed professionals can effortlessly track mileage, expenses, and income to make tax season easier and maximize deductions.
Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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