Understanding Federal Taxes: A Simple Guide for 2025

How Federal Taxes Work

1. Income Tax Brackets & Rates

   The U.
   S.
   tax system is progressive, meaning higher earnings are taxed at higher rates.
   

   • 2025 Tax Brackets: Updated brackets determine how much tax you owe based on your income.
     
   • Filing Status: Rates vary for single, married filing jointly, married filing separately, and head of household.
     

2. Standard Deduction vs.
   Itemized Deductions

   Taxpayers can reduce their taxable income by claiming deductions.
   

   • Standard Deduction: A fixed amount subtracted from taxable income.
     
   • Itemized Deductions: Includes mortgage interest, medical expenses, and charitable contributions.
     

3. Tax Credits

   Credits directly reduce the amount of tax owed, unlike deductions.
   

   • Earned Income Tax Credit (EITC): Helps low-to-moderate-income workers.
     
   • Child Tax Credit: Provides relief for families with dependent children.
     
   • Education Credits: Available for tuition and higher education expenses.
     

4. Payroll Taxes

   Federal payroll taxes fund Social Security and Medicare.
   

   • Social Security Tax: 6.
     2% paid by employees, matched by employers.
     
   • Medicare Tax: 1.
     45% paid by employees, with an additional tax for high earners.
     

5. Filing Federal Taxes

   Taxpayers must file annual tax returns with the IRS.
   

   • Deadline: The standard deadline is April 15, 2025.
     
   • Online Filing Options: Services like IRS Free File, TurboTax, and H&R Block make filing easier.
     

Tips to Lower Your Tax Bill

• Maximize retirement contributions (401(k), IRA) to reduce taxable income.
  
• Take advantage of tax credits for education, childcare, and energy-efficient home upgrades.
  
• Keep records of deductible expenses, such as medical costs and charitable donations.
  
• Check eligibility for tax-free Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA).