8.1 Tax Tables & Rate Schedules

Overview of the Federal Tax System

The United States employs a progressive income tax system — as taxable income rises, additional dollars are taxed at higher rates. For the 2025 tax year (tested on the 2026-2027 EA SEE running July 1, 2026 – February 28, 2027), there are seven marginal tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made the seven TCJA bracket structure permanent (it was scheduled to sunset after 2025) and locked in the higher standard deductions. Inflation indexing for 2025 was already published in Rev. Proc. 2024-40; the rate schedules below reflect those amounts.

---

2025 Federal Income Tax Brackets

Single Filers

Married Filing Jointly (MFJ) / Qualifying Surviving Spouse

Married Filing Separately (MFS)

Head of Household (HoH)

Estates and Trusts (compressed schedule)

EA Exam Tip: MFS brackets mirror Single up through 35%, but the MFS 37% threshold is exactly half of MFJ ($375,800 vs. $751,600). Trusts/estates hit the top 37% rate at only $15,650 — a heavily tested compression.

---

Marginal vs. Effective Tax Rate

Marginal Tax Rate

The marginal tax rate is the rate applied to the last dollar of taxable income (the bracket the taxpayer falls into). It drives decisions about:

• Tax impact of additional income
• After-tax value of deductions
• Year-end planning

Effective Tax Rate

The effective tax rate = total tax ÷ taxable income. It is the average percentage of income paid as tax.

2025 Calculation Example

Single taxpayer with $85,000 taxable income in 2025:

• Marginal Tax Rate: 22%
• Effective Tax Rate: $13,614 / $85,000 ≈ 16.02%

EA Exam Tip: A common trap is confusing marginal and effective rates. The marginal rate is always higher than the effective rate in a progressive system.

---

Tax Tables vs. Rate Schedules

When to Use Tax Tables

• Taxable income is less than $100,000
• Use IRS-published tables in Form 1040 instructions (rounded to $50 ranges)

When to Use Rate Schedules

• Taxable income is $100,000 or more
• Use the rate schedules (Schedule X, Y-1, Y-2, Z, or trust/estate schedule)

Rate Schedule Format

Tax = Base Amount + (Rate × (Taxable Income − Bracket Start))

---

2025 Long-Term Capital Gains / Qualified Dividend Brackets

Net long-term capital gains and qualified dividends are taxed at preferential rates of 0%, 15%, or 20%.

Collectibles gain (e.g., gold, art) and §1250 unrecaptured depreciation gain remain taxed at up to 28% and 25% respectively.

---

Taxable Income Calculation Flow

Gross Income (all income from all sources)
- Above-the-line deductions (Schedule 1 adjustments, including the new OBBBA tips, overtime, and auto-loan-interest deductions)
= Adjusted Gross Income (AGI)
- Greater of: Standard Deduction OR Itemized Deductions
- Qualified Business Income (QBI) Deduction (if applicable)
- New OBBBA Senior Bonus Deduction ($6,000 per qualifying 65+ taxpayer, available to both standard and itemized filers, 2025–2028)
= Taxable Income

2025 Standard Deduction Amounts (post-OBBBA)

OBBBA raised these amounts retroactively to January 1, 2025 (the original Rev. Proc. 2024-40 figures of $15,000 / $30,000 / $22,500 were superseded).

Additional Standard Deduction for Age 65+ / Blindness (unchanged structure):

• Single / HoH: $2,000 per qualifying condition
• MFJ / MFS: $1,600 per qualifying condition per spouse

NEW — OBBBA Senior Bonus Deduction (2025–2028): An additional $6,000 per qualifying taxpayer age 65+; phases out at 6% per dollar of MAGI above $75,000 Single / $150,000 MFJ; fully phased out at $175,000 / $250,000. Available to both standard-deduction users AND itemizers, on top of the existing $2,000/$1,600 age-65 amount.

---

Net Investment Income Tax (NIIT)

The Net Investment Income Tax is an additional 3.8% tax on net investment income for individuals, estates, and trusts above statutory thresholds.

NIIT Thresholds (Not Indexed for Inflation)

What Counts as Net Investment Income?

Included:

• Interest, dividends, capital gains, rental & royalty income, annuities (non-qualified)
• Passive trade-or-business income
• Gain from disposition of investment property

Excluded:

• Wages, unemployment, Social Security benefits
• Active trade-or-business self-employment income
• Tax-exempt municipal bond interest
• Distributions from qualified retirement plans / IRAs
• Gain on sale of an active interest in a partnership / S corporation

NIIT Calculation

NIIT = 3.8% × lesser of:

1. Net investment income, OR
2. MAGI excess over the threshold

Example: Single taxpayer with MAGI $280,000 and net investment income $50,000.

• Excess over threshold: $280,000 − $200,000 = $80,000
• Lesser of $50,000 (NII) or $80,000 (excess) = $50,000
• NIIT: $50,000 × 3.8% = $1,900

EA Exam Tip: NIIT thresholds have not been adjusted for inflation since enactment in 2013. They remain static even after OBBBA.

---

Key Points for the EA Exam

1. Memorize the 2025 bracket cut-points for Single, MFJ, and HoH — especially the 22%/24% break at $48,475 (Single) and $96,950 (MFJ).
2. Trusts/estates hit 37% at only $15,650 — a frequent fact tested.
3. $100,000 dividing line between tax tables and rate schedules.
4. Compute both marginal and effective rates when asked.
5. NIIT thresholds are static — $200K Single, $250K MFJ, $125K MFS.
6. 2025 standard deductions are $15,750 / $31,500 / $23,625 (post-OBBBA).
7. Senior Bonus Deduction $6,000 stacks on top of age-65 add-on through 2028.