In 2024, federal income tax rates remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
While these rates stay the same for 2025, the income thresholds for each bracket will adjust for inflation. However, significant changes loom ahead—the Tax Cuts and Jobs Act of 2017 is set to expire at the end of 2025, which could substantially impact future tax rates.
Remember, your 2024 tax return is due April 15, 2025, with extensions available until October 15, 2025. In this article, we’ll explore the current 2024 federal income tax brackets, compare them to 2023’s rates, and look at what’s changing for 2025.
While these rates stay the same for 2025, the income thresholds for each bracket will adjust for inflation. However, significant changes loom ahead—the Tax Cuts and Jobs Act of 2017 is set to expire at the end of 2025, which could substantially impact future tax rates.
Remember, your 2024 tax return is due April 15, 2025, with extensions available until October 15, 2025.
What Are Tax Brackets and Tax Rates?
Tax brackets are income ranges that determine how much tax you pay. Your tax rate is the percentage you pay on the income within each bracket. Both depend on your filing status and annual income.
Here’s how it works: As a single filer in 2024, your income from $11,601 to $47,150 is taxed at 12%. This is called being in the “12% tax bracket.” But you won’t pay 12% on all your income—only on the dollars within that range. Lower amounts are taxed at lower rates, and higher amounts are taxed at higher rates.
Check the best tax debt relief services
How Do Tax Brackets and Tax Rates Work?
The United States has a progressive tax system, which means tax rates increase as income rises. Tax brackets show exactly what rate applies to each level of income.
“A progressive tax system means the more money you make, the higher your last tax dollar falls into,” says Andrew Van Alstyne, Enrolled Agent and financial advisor at Fiduciary Financial Advisors. “This ties directly into the marginal tax rate, which implies the sliding scale that a taxpayer ‘progresses’ up with more income. The effective tax rate is the average rate the taxpayer pays. The progressive/marginal system can be viewed as buckets filled up, only increasing to a higher percentage once the previous income bracket is filled.”
For example, as a single filer in 2024, you’ll pay:
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10% on the first $11,600 of income
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12% on income from $11,601 to $47,150
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22% on income from $47,151 to $100,525
Important: Your tax bracket isn’t your overall tax rate for the year—it’s only the rate you pay on your highest income level. Most taxpayers have a lower “effective tax rate” (the average rate you actually pay) than their tax bracket suggests, since lower portions of income are taxed at lower rates.
2024 Tax Brackets and Income Rates
The 2024 tax brackets and income tax rates apply to income earned in 2024 and will be reported on your tax return filed in early 2025.
2023 Tax Brackets and Income Tax Rates
Tax returns for 2023 were due on April 18, 2024, for most filers. If you secured an extension by tax day, your new federal filing deadline was Oct. 16, 2024. Here are the tax rates and income brackets for 2023:
2025 Tax Brackets and Income Tax Rates
The IRS just announced the new tax brackets and rates for 2025. These income brackets were adjusted for inflation—so they are slightly higher than in 2024:
How to Reduce Taxes Owed
There are several proven strategies to reduce your tax bill, with tax deductions and tax credits being the main way to lower your taxes owed for the year. Here’s how they work:
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Tax deductions: These lower your taxable income and may even drop you into a lower tax bracket. Some deductions can be taken yearly, and some only apply if you itemize your tax deductions. Common deductions include retirement account contributions, student loan interest, mortgage interest, and state taxes paid.
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Tax credits: Tax credits directly reduce what you owe dollar-for-dollar, making them typically more valuable than deductions. Common tax credits include the child tax credit, earned income tax credit, and the American opportunity tax credit.
If you’re a small business owner, you can also lower your taxes owed by deducting business expenses or incorporating your business to lower your self-employment taxes owed.
Bottom Line
Your income and tax filing status determine your tax bracket and rate, but being in a higher bracket doesn’t mean all your income is taxed at that rate. You’ll pay different rates as your income moves through each bracket. While tax deductions and credits can help lower your bill, tax law can be complex.
Consider working with a licensed tax professional (like an Enrolled Agent or CPA) to avoid costly mistakes and maximize your savings. If you’re facing tax challenges, our recommended tax relief service providers can help you explore your options and find the best path forward.
This article originally appeared on Bestmoney.com and was syndicated by MediaFeed.org
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Debt Consolidation vs. Debt Settlement: Which Is Best for You? (& 4 Alternative Options)
Struggling with multiple debts? Understanding the difference between debt consolidation and debt settlement is crucial for managing your financial future. Let’s explore these two debt management strategies to help you make an informed decision.
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Debt consolidation combines multiple debts into a single loan, often with a lower interest rate.
The goal of consolidating debt is often to simplify monthly payments or reduce your interest rate. For instance, someone with $20,000 in credit card debt spread across three cards with an average Annual Percentage Rate (APR) of 18% might get a lower-interest personal loan at 10% APR to pay them off.
After consolidation, they’ll have one monthly personal loan payment instead of juggling several high-interest credit card payments, potentially saving money on interest and simplifying their debt management.
Banks, credit unions, and online lenders offer debt consolidation loans. While many people consolidate debt with a personal loan, other types of financing, such as home equity loans, can also be used for this purpose. Debt consolidation loans can be unsecured, meaning no collateral is required, or secured, meaning collateral is required.
We’ve researched the best debt consolidation loans in depth to find the best solution for your situation.
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Pros:
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Simplified monthly payments
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Potentially lower interest rates (average reduction of 5-10%)
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Maintained or improved credit score if payments are made on time
Cons:
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May require good credit (typically 660+ FICO score)
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Risk of accruing more debt if spending habits don’t change
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With debt settlement, you or a third-party service negotiates with your creditors to settle your debt for less than you owe. A typical settlement might be 50% of the original debt amount. While reducing your debt might sound ideal, it comes at a cost: Debt settlement damages your credit significantly, and settled accounts stay on your credit reports for seven years.
There’s also no guarantee that your creditors will accept a lower payment. Even if they do, you may need to pay your remaining balances as a lump sum, which could be difficult if you’re struggling financially. Fees often apply if you work with a debt settlement company.
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Pros:
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Reduces total debt amount (average savings of 20-50%)
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Can help avoid bankruptcy
Cons:
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Significant negative impact on credit score (typically 100+ points)
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Settled debts are usually taxable as income
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Fees can be hefty (15-25% of enrolled debt)
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Financial situation: Those considering debt consolidation generally have more manageable debt and better credit than people looking into debt settlement.
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Credit score impact: Debt consolidation doesn’t significantly harm your credit score, but settlement could seriously hurt your credit.
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Costs: Many lenders charge an origination or application fee for a debt consolidation loan, but that’s a one-time, often nominal cost. Debt settlement could cost more in fees and taxes, as settled debt is taxable.
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Timeframe: Paying off consolidated debt might take several years, depending on your balance. The debt settlement process typically takes 24-48 months.
Here are the best debt consolidation loans
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Credit Counseling
Non-profit agencies offer free or low-cost advice and can help create a debt management plan tailored to your needs. According to the National Foundation for Credit Counseling (NFCC), 67% of their clients reported being better at managing money after counseling.
Debt Management Plans (DMPs)
These plans, often arranged through credit counseling agencies, can lower your interest rates and consolidate payments without taking out a new loan. The NFCC reports that clients on DMPs typically become debt-free in 3-5 years.
Bankruptcy
While often seen as a last resort, bankruptcy can provide a fresh start for those with overwhelming debt. Chapter 7 bankruptcy can eliminate most unsecured debts, while Chapter 13 allows for a structured repayment plan.
Do-It-Yourself Debt Payoff Methods
Strategies like the debt snowball (paying off the smallest debts first) or debt avalanche (focusing on the highest-interest debts) can be effective. A study published in the Journal of Consumer Research found that people using the debt snowball method were likelier to eliminate their debt entirely.
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Your choice between debt consolidation or debt settlement depends on your unique financial circumstances. Debt consolidation can be a good idea as it is generally less risky and better for your credit, while settlement can provide more immediate relief for overwhelming debt. Always research thoroughly and consider consulting a financial advisor before making a decision.
This article originally appeared on Bestmoney.com and was syndicated by MediaFeed.org
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