Income in America is taxed at multiple levels, including federal, state, and sometimes local taxes. The federal income tax system is progressive, meaning the percentage of tax increases as income rises. Marginal tax rates range from 10% to 37%.
Understanding your tax calculation
To determine your federal income tax, you need to consider factors like household income, filing status, and location. Your tax burden is influenced by different rates and deductions available to you.
Read now: What is my federal marginal tax rate and effective tax rate?
Federal income tax breakdown
Taxes can be broken down into various categories:
- Marginal Tax Rate – The highest percentage of tax applied to your income.
- Effective Tax Rate – The average rate you pay on your total income.
- Federal Taxes – Taxes paid to the federal government.
- FICA Taxes – Social Security and Medicare taxes.
- State and Local Taxes – Additional taxes depending on where you live.
- Total Income Taxes – The total amount deducted from your earnings.
- Income After Taxes – The remaining income after all deductions.
- Retirement Contributions – Pre-tax deductions for retirement savings.
- Take-Home Pay – Your final earnings after all taxes and deductions.
Comparing your 2024 federal income tax
Your tax liability depends on various factors. You can estimate your total tax burden by considering:
- Income Tax – The amount owed based on earnings.
- Sales Tax – Additional taxes on purchases.
- Fuel Tax – Taxes on gasoline and diesel.
- Property Tax – Taxes on real estate you own.
- Total Estimated Tax Burden – The overall percentage of income spent on taxes.
How are you taxed?
The IRS administers the federal personal income tax, which is the primary revenue source for the U.S. government. Most workers file a tax return annually, while employers withhold payroll taxes throughout the year.
Read now: What happens if you owe the IRS more than $25,000? What to do next?
Federal income tax for W-2 employees
W-2 employees receive a W-2 tax form from their employer, detailing salary and taxes withheld. These deductions cover Social Security, Medicare, federal income tax, and state taxes where applicable. Employers and employees split FICA taxes, which fund Social Security and Medicare. The total FICA rate is 15.3%, with both parties covering 7.65% each.
Read now: How much do you have to make to file taxes and what is the maximum amount to pay taxes?
Federal income tax for 1099 employees
Independent contractors, or 1099 workers, do not have taxes automatically deducted from their pay. Instead, they must handle self-employment tax, which covers Social Security and Medicare. Unlike W-2 employees, 1099 workers pay the full 15.3% FICA tax.
If a contractor earns more than $600 from a client in a tax year, the employer must provide a 1099 form for tax reporting.
Read now: What are the most common tax season scams to avoid – IRS warns taxpayers to beware
Understanding marginal tax rates
The U.S. uses a progressive tax system, meaning different portions of income are taxed at different rates. Tax brackets determine these rates.
2024-2025 federal tax brackets
For single filers:
- 10%: $0 – $11,600
- 12%: $11,600 – $47,150
- 22%: $47,150 – $100,525
- 24%: $100,525 – $191,950
- 32%: $191,950 – $243,725
- 35%: $243,725 – $609,350
- 37%: Over $609,350
For married, filing jointly:
- 10%: $0 – $23,200
- 12%: $23,200 – $94,300
- 22%: $94,300 – $201,050
- 24%: $201,050 – $383,900
- 32%: $383,900 – $487,450
- 35%: $487,450 – $731,200
- 37%: Over $731,200
Estimating your tax bill
For example, a single filer earning $50,000 has a top marginal tax rate of 22%. However, only part of their income is taxed at this rate. Their total tax bill would be about $6,053, with an effective tax rate of 12.1%.
Calculating taxable income
Taxable income is different from total income. To determine taxable income, you subtract deductions from your gross income.
Common deductions include:
- State and Local Taxes (SALT) – Deduct up to $10,000 in state/local income or sales taxes.
- Mortgage Interest – Deduct interest on mortgages up to $750,000.
- Charitable Contributions – Deduct donations made to eligible charities.
- Medical Expenses – Deduct expenses exceeding 7.5% of AGI.
Standard deductions for 2024-2025
- Single: $14,600
- Married, Filing Jointly: $29,200
- Married, Filing Separately: $14,600
- Head of Household: $21,900
Most taxpayers use the standard deduction unless itemizing provides greater benefits.
Read now: Who can apply for federal tax exemption, and who is eligible for tax-exempt status?
