Farewell to the IRS’s Tax Brackets: Here Are the New Limits That Will Increase Your Savings in January 2025

On By Littum

Tax season is fast approaching, with the US Internal Revenue Service (IRS) set to begin processing tax returns in late January.

Each year, the IRS adjusts the tax bracket, which is based on earnings, for inflation. As incomes grow or shrink, so does the tax bracket, which determines the percentage of labor income sent to the federal government.

The US uses a ‘progressive‘ tax system where those who earn more are taxed more than those who earn less when it comes to taxes levied on income generated through employment. Regressive systems, on the other hand, are more like sales taxes, where all income recipients pay the same tax rate.

Tax rates for income generated in 2024 are about five percent higher than last year. By increasing tax rates, workers can avoid being bumped into a higher tax rate if they get a small pay rise.

2024 Tax Classes for the 2025 Tax Filing Season

  • 10% for incomes under $11,600 or less ($23,200 for married couples filing jointly).
  • 12% for incomes over $11,600 ($23,200 for married couples filing jointly)
  • 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
  • 24% for incomes over $100,525 ($201,050 for married couples filing jointly).
  • 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
  • 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
  • 37% for incomes over $609,350 ($731,200 for married couples filing jointly).

What is often misunderstood about the tax system is that a worker’s income is not subject to one tax rate. Let’s look at an example: Imagine the case of Penny, who in 2024 will have an annual pre-tax income of $86,580. This figure is based on the average weekly earnings for the third quarter of this year, as reported by Bureau of Labor Statistics.

Calculation of your tax bill

If the IRS were to tax Penny’s total income at twenty-two percent, the rate at which income between $47,150 and $100,525 will be taxed in 2024, she would pay the federal government $19,047.

However, this is not how the calculation is made.

For the 2024 tax filing season, the first $11,600 earned will be taxed at 10 percent, for a total of $1,600. So, a tax of 12 percent will be charged on the amount between $11,600 and $47,150equivalent to $4,266. Finally, because Penny’s income does not exceed $100,525, a 24 percent tax will be applied to the worker’s remaining income ($39,430)for a total of $8,674, bringing her total tax bill to $14,540. This figure does not take into account any taxes paid to Social Security or to the state government.

What will be the standard deduction for the 2024 tax season?

Like the tax levels, the standard deduction also changes from year to year. For the 2024 tax season, the IRS will offer a standard deduction of:

  • $14,600 for single filers or married filers filing separately (+$750 as of 2023);
  • $29,200 for married couples filing jointly (+$1,500 from 2023); and
  • $21,900 for those filing as heads of household (+ $1,100 from 2023).

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