A single rate or authority does not determine taxes in the United States. They span multiple layers, including federal, state, and local levels. Whether you’re living in the U.S., planning to move, or doing business with American entities, it’s crucial to understand how much tax you’ll pay, why these taxes exist, and which types apply to your income and transactions.
This Arabian Vox guide breaks down everything you need to know about U.S. taxation for 2024–2025! Including current income tax brackets, deductions, state variations, and how to estimate your total tax burden.
Federal Income Tax: The Big Picture
At the federal level, the U.S. follows a progressive income tax system! Meaning that as your income increases, the rate you pay also increases. However, you don’t pay the top rate on all your income. Instead, each portion of your income falls into a specific “bracket” that’s taxed at its own rate. Many people compare US tax with UAE corporate tax rules.
In simple terms:
You pay a lower rate on your first dollars earned, and progressively higher rates on the income that exceeds each bracket threshold.
This system ensures that people with higher earnings contribute a larger share of their income, while lower earners are taxed at a lower rate.
Current Rates & Brackets 2025 According to IRS
For the 2025 tax year, the IRS updated federal income tax brackets to adjust for inflation. These new rates determine how much individuals and families owe based on their filing status and taxable income.
Table 1: 2025 Federal Income Tax Brackets (Single Filers)
|
Tax Rate |
Taxable Income From |
To |
|
10% |
$0 |
$11,925 |
|
12% |
$11,926 |
$48,475 |
|
22% |
$48,476 |
$103,350 |
|
24% |
$103,351 |
$197,300 |
|
32% |
$197,301 |
$250,525 |
|
35% |
$250,526 |
$626,350 |
|
37% |
$626,351 |
and up |
Table 2: 2025 Federal Income Tax Brackets (Married Filing Jointly)
|
Tax Rate |
Taxable Income From |
To |
|
10% |
$0 |
$23,850 |
|
12% |
$23,851 |
$96,950 |
|
22% |
$96,951 |
$206,700 |
|
24% |
$206,701 |
$394,600 |
|
32% |
$394,601 |
$501,050 |
|
35% |
$501,051 |
$751,600 |
|
37% |
$751,601 |
and up |
Note: Filing statuses such as Head of Household and Married Filing Separately have their own income ranges and deduction limits, which are slightly adjusted to reflect inflation and filing thresholds.
How do the Brackets Work?
Understanding how brackets apply is crucial because it’s one of the most misunderstood parts of the tax system.
Even if you fall into the 37% tax bracket, you do not pay 37% on your entire income. You only pay that rate on the portion that exceeds the upper limit of the previous bracket.
For example:
If you are a single filer with $60,000 in taxable income, your tax is calculated as follows:
- 10% on the first $11,925 = $1,192.50
- 12% on income between $11,926–$48,475 = $4,385.88
- 22% on the remainder ($60,000 − $48,475 = $11,525) = $2,535.50
Total Federal Tax = $8,113.88
Your effective tax rate = 13.5% (Total tax ÷ Total income).
This shows that your overall tax burden (effective rate) is lower than your top marginal rate. Cross-border income may also trigger withholding tax considerations for UAE residents.
Understanding Standard Deduction & Taxable Income
Before your income is taxed, you can subtract deductions that reduce your taxable amount. Most Americans claim the standard deduction, which simplifies filing. Others choose to itemize deductions if their eligible expenses (like mortgage interest, charitable donations, or medical costs) exceed the standard deduction.
Standard Deduction Amounts for Tax Year 2025
For tax year 2025, the IRS announced the following standard deductions:
- Single filers: $15,000
- Married filing jointly: $30,000
- Heads of household: $22,500
How to Calculate Taxable Income
Formula:
Taxable Income = Gross Income − (Standard or Itemized Deduction) − Adjustments
Standard adjustments include contributions to retirement accounts, health savings accounts, and student loan interest payments. These deductions and adjustments can substantially reduce your overall taxable income! And therefore, your tax bill.
Additional Considerations for High-Income Earners
While the bracket system is straightforward, additional tax layers may apply depending on your income level and financial activities.
- The top marginal rate of 37% applies to single filers earning more than $626,350 and married couples earning more than $751,600.
- High-income earners may also face the Alternative Minimum Tax (AMT) — a parallel tax system designed to ensure a minimum tax is paid even after deductions.
- Additionally, the 3.8% Net Investment Income Tax (NIIT) may apply to individuals with substantial investment earnings above certain thresholds.
These provisions ensure tax fairness but can complicate filing for those with diverse income sources.
State & Local Income Taxes in the US
While the federal income tax applies nationwide, most U.S. states impose their own state income taxes! And in some cases, local income taxes as well. These rates, rules, and deductions vary widely, which means your location can significantly influence how much tax you ultimately pay. To stay compliant, expats require a Tax Identification Number (TIN).
Overview of State Income Tax Structures
Of the 50 states, 42 levy an individual income tax. Each has its own structure and system for calculating how much you owe. Generally, they fall into three main categories:
|
Type of System |
States Included |
Top Rate (2025) |
Notes |
|
No Income Tax |
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming |
0% |
Residents pay no personal income tax. Some states rely heavily on sales or property taxes. |
|
Flat Income Tax |
Arizona, Colorado, Georgia, Idaho, Illinois, Indiana, Iowa, Kentucky, Michigan, Mississippi, New Hampshire*, North Carolina, North Dakota, Pennsylvania, Utah |
2.5%–5% |
Simple structure with a single rate on all income. |
|
Graduated Income Tax |
California, New York, New Jersey, Oregon, Minnesota, Wisconsin, Vermont, etc. |
Up to 14.4% (California) |
Higher earners pay higher rates; these states often have multiple brackets. |
Top Marginal State Rates of 2025
In 2025, top state tax rates vary dramatically! From 0% in tax-free states to 13.3% in California, which has the nation’s highest marginal rate.
Below are examples highlighting this variation:
- California: Top marginal rate 13.3% (plus payroll and mental health surcharges in some cases).
- New York: Top rate around 10.9%.
- Oregon: Top rate 9.9%.
- Massachusetts: Flat rate of 5%.
- Arizona and North Dakota: Around 2.5% top rate.
- Florida, Texas, Wyoming: No personal income tax.
These differences create significant location-based tax disparities that can influence where people live, work, or retire.
Example: A remote employee earning $150,000 could pay over $15,000 more in annual taxes if based in California compared to Texas. People researching US tax often check Philippine travel tax as well for comparison.
Table: Selected States – Top Marginal Rates & Structure (2025)
|
State |
Income Tax Structure |
Top Marginal Rate (2025) |
|
California |
Graduated (12 brackets) |
13.3% |
|
New York |
Graduated (8 brackets) |
10.9% |
|
North Carolina |
Flat rate |
4.25% |
|
Arizona |
Single-rate (flat) |
2.5% |
|
Texas |
None (no personal tax) |
0% |
|
Florida |
None |
0% |
|
Oregon |
Graduated |
9.9% |
|
Massachusetts |
Flat |
5% |
Top marginal rates apply to the highest income brackets and may vary with changes in state legislation.
What This Means for You
If you live in a high-tax state like California or New York, your combined federal and state tax bill can be substantially higher than someone in Texas or Florida, where there’s no state income tax.
People often consider moving or remote work based on these differences, particularly in industries like tech or consulting where work location is flexible.
Key takeaways:
- Your state of residence matters just as much as your income bracket.
- Some states automatically adjust brackets with inflation, while others don’t—causing “bracket creep” over time.
- If you earn income from multiple states, you may need to file non-resident returns in each. Read more tax guides in the Finance category.
Sales Tax with The Hidden Cost
While income tax often gets the spotlight, sales tax is another major contributor to the total tax burden faced by Americans. Unlike income tax, which is based on your earnings, sales tax is applied when you make a purchase! Making it a “hidden” cost of everyday living.
What Is Sales Tax?
Sales tax is a consumption-based tax levied on the sale of goods and certain services. It’s typically charged at the point of purchase, and rates vary depending on the state and local jurisdiction.
- State base rate: The minimum rate set by the state government.
- Local add-on rates: Additional taxes imposed by counties or cities, which can increase the total rate you pay.
- Use tax: Paid on out-of-state purchases or online orders when sales tax wasn’t collected.
Tip: Always check your receipt — in many areas, the combined state and local sales tax can exceed 10%.
2025 Statewide Sales Tax Rates
The following table highlights selected 2025 state sales tax rates, including the base rate and total possible range after local taxes are added (based on Avalara’s 2025 data).
|
State |
State Base Rate |
Total Range (State + Local) |
|
California |
6.00% |
7.25% – 10.25% (0.15%–3% local) |
|
Hawaii |
4.00% |
4.00% – 4.50% (0%–0.5% local) |
|
Texas |
6.25% |
6.375% – 8.25% (0.125%–2% local) |
|
Delaware |
0% |
0% (no sales tax) |
|
Washington |
6.5% |
7.0% – 10.5% (local add-ons) |
|
New York |
4.0% |
7% – 8.875% (city/county dependent) |
Note: These rates can change periodically; always refer to official state revenue websites for the most up-to-date figures.
Why It Matters
Even if your income tax rate is low, a high sales tax can increase your cost of living, particularly in cities like Los Angeles or Chicago.
- Consumers: Regular purchases such as groceries, fuel, and dining are directly affected by sales tax.
- Businesses: Online sellers or service providers may need to collect sales tax in every state where they have nexus (a physical or economic presence).
- Relocation decisions: People moving between states often compare both income and sales tax rates to estimate their real disposable income.
For example, a person earning $70,000 in Texas (no income tax but high sales tax) may pay as much total tax as someone in Oregon (high income tax but no sales tax).
How Much Tax Will You Pay? Example Scenarios
Let’s illustrate how the U.S. federal tax brackets work through two simplified examples for 2025.
Scenario A – Single Filer, Taxable Income $60,000
- Gross income: $75,000
- Standard deduction (2025): $15,000
- Taxable income: $60,000
|
Bracket |
Tax Rate |
Income Range |
Tax Due |
|
1st |
10% |
$0 – $11,925 |
$1,192.50 |
|
2nd |
12% |
$11,926 – $48,475 |
$4,385.88 |
|
3rd |
22% |
$48,476 – $60,000 |
$2,535.50 |
Total Federal Tax: ≈ $8,113.88
Effective Tax Rate: ≈ 13.5%
Scenario B – Married Filing Jointly, Taxable Income $150,000
- Gross income: $180,000
- Standard deduction (2025): $30,000
- Taxable income: $150,000
|
Bracket |
Tax Rate |
Income Range (approx.) |
Tax Due (approx.) |
|
1st |
10% |
Up to $23,850 |
$2,385 |
|
2nd |
12% |
$23,851 – $96,950 |
$8,770 |
|
3rd |
22% |
$96,951 – $150,000 |
$11,645 |
Total Federal Tax: ≈ $22,800
Effective Tax Rate: ≈ 15.2%
Note: You don’t pay the top rate on all income — only on the portion that falls into that bracket.
Why Taxes Differ So Much State-to-State
The U.S. Constitution gives states autonomy over taxation, resulting in wide disparities:
- Economic strategy: Some states avoid income tax to attract residents and businesses.
- Local add-ons: Counties or cities can impose extra taxes for public services.
- Public priorities: Higher-tax states often invest more in healthcare, education, and transportation.
- Inflation indexing: States that don’t index brackets can cause tax bracket creep! Paying more just because of inflation, not increased income.
Tax Planning Tips (U.S. Focus)
- Contribute to retirement accounts (401(k), IRA) to lower taxable income.
- Choose between standard or itemized deduction — whichever gives higher benefit.
- Factor in state + sales + property taxes when estimating total burden.
- Stay updated — states frequently adjust rates or structures.
- Business owners: Understand nexus and register correctly in all operating states.
- Track credits and deductions — education, healthcare, child credits, etc.
- If you work remotely across states, confirm which state claims your income.
Investors should also evaluate capital gains tax.
FAQs
What is a filing status, and why does it matter?
Filing status determines your applicable tax brackets and deduction amount, like Single, Married Jointly, Head of Household, or Separately.
What if I live abroad or earn income in multiple states?
U.S. citizens are taxed on worldwide income. States may also tax non-residents for income earned locally.
If my income jumps, do I pay higher tax on all of it?
No, only the portion in the higher bracket is taxed at the higher rate.
How do sales tax and income tax interact?
They’re separate : income tax applies to earnings; sales tax applies to spending.
Are deductions and credits the same?
No. Deductions reduce taxable income; credits directly reduce the tax owed.
