While some types of taxes in the US, such as sales tax and some state income taxes, are flat taxes where you pay a set percentage of a taxable amount, the US federal income tax works on a progressive tax system. As your income increases, the marginal tax rate on your highest amounts of earned income may also increase if it falls into the next tax bracket. This does not mean, however, that you owe the tax rate of the highest tax bracket you fall into on your entire income. This is a common misconception we see in our online communities for physicians, especially from graduating residents and fellows looking at their physician employment agreement or trying to determine their budget based on their first attending paycheck. Below, we cover what marginal tax brackets are and how the progressive tax system in the US works, as well as how to calculate your effective tax rate.
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What Type of Federal Tax System Does the United States Have?
In the US, our federal income tax is based on a progressive tax system, meaning that not every dollar that you make is taxed the same, as it would with a flat tax rate system. Instead, you pay different tax rates on different “buckets” of your income as your income increases. These buckets are referred to as tax brackets, and these are set based on your filing status (for example, single, married filing jointly, etc).
What are the Federal Income Tax Rates for the Tax Brackets in 2025?
There are currently seven different federal income tax rates – 10%, 12%, 22%, 24%, 32%, 35%, and 37% as of 2025 - for each different “bucket,” or tax bracket, of your taxable income. Only the income that falls within the range of a tax bracket is taxed at that specific tax rate. Moving from the 24% tax rate to the 32% tax rate, for example, doesn’t mean all your income is suddenly taxed at 32%. Only the taxable income above the threshold for the 32% tax rate is susceptible to that rate. Below, we look at what these income ranges are.
What Is the Marginal Tax Rate?
Your marginal tax rate is the tax rate you pay on your highest dollar of taxable income based on the highest tax bracket that this dollar falls into.
Just because you pay this tax rate on your top earned dollar does not mean you pay the marginal tax rate on every dollar you earn. You won’t unless your entire income falls within the lowest tax bracket, which is a rarity for physicians. You will only pay this tax rate on the amount of your income that falls within the tax bracket for that tax rate.
What Is the Effective Tax Rate?
You may come across the term effective tax rate. This is used to determine your average tax rate you end up paying overall on your total income, taking into account how much of your income falls into each tax bracket. We look into the differences between your marginal and effective tax rates with an example below.
Marginal Tax Rate vs. Flat Tax Rate
Some tax systems, such as income taxes for certain states, work under a flat tax rate. With a flat tax, all your taxable income is taxed at that one specific tax rate, regardless of your maximum earnings.
When doctors worry about paying more overall federal taxes because they jump into a higher tax bracket, they are assuming that federal income tax is a flat tax, but they are incorrect. While it’s true that higher income earners do pay a higher overall amount of taxes, their overall effective tax rate can be significantly lower than a flat rate at their highest marginal tax rate.
What Are the Marginal Tax Rates for each Federal Income Tax Bracket in 2025 and 2024?
The tax brackets for federal income taxes depend on your filing status for your annual tax return.
For your 2025 taxes (filed in 2026), the different tax brackets are:
Tax Rate | Single | Married Filing Joint | Head of Household |
10% | $0 to $11,925 | $0 to $23,850 | $0 to $17,000 |
12% | $11,926 to $48,475 | $23,851 to $96,950 | $17,001 to $64,850 |
22% | $48,476 to $103,350 | $96,951 to $206,700 | $64,851 to $103,350 |
24% | $103,351 to $197,300 | $206,701 to $394,600 | $103,351 to $197,300 |
32% | $197,301 to $250,525 | $394,601 to $501,050 | $197,301 to $250,500 |
35% | $250,526 to $626,350 | $501,051 to $751,600 | $250,501 to $626,350 |
37% | $626,351 or more | $751,601 or more | $626,351 or more |
If you’re still working on your return for tax year 2024 due in 2025, the tax brackets look slightly different as the IRS typically increases the income range based on annual inflation information.
2024 Tax Brackets:
Tax Rate | Single Filers | Married Filing Joint | Head of Household |
10% | $0 to $11,600 | $0 to $23,200 | $0 to $16,550 |
12% | $11,601 to $47,150 | $23,201 to $94,300 | $16,551 to $63,100 |
22% | $47,151 to $100,525 | $94,301 to $201,050 | $63,101 to $100,500 |
24% | $100,526 to $191,950 | $201,051 to $383,900 | $100,501 to $191,950 |
32% | $191,951 to $243,725 | $383,901 to $487,450 | $191,951 to $243,700 |
35% | $243,726 to $609,350 | $487,451 to $731,200 | $243,701 to $609,350 |
37% | $609,351 or more | $731,201 or more | $609,351 or more |
It’s important to note that the income included for the marginal tax bracket is your taxable income. This is not every single dollar you earn. Every American receives either a standard deduction or itemized deduction (depending on their expenses) that helps reduce what part of their earned income is deemed taxable in the eyes of the IRS.
There are also other tax deductions and tax credits that can further reduce your taxes for a year. Tax deductions work by lowering your taxable income that you use with the marginal tax brackets in calculating your total income tax for the year.
Learn more about tax deductions and tax credits in our physician’s guide to understanding taxes.
If you’re a W-2 employee physician, you may have the following, for example, that will lower your taxable income:
1099 and self-employed physicians may have several additional potential tax deductions available depending on their type of work.
Learn more about:
Marginal Tax Rate Vs Effective Tax Rate
A common misconception is that if you earn more, you’re taxed more on every dollar. While it’s true that earning more can bump the highest dollars you earn into a higher marginal tax rate overall, this doesn’t mean that you’re taxed more overall on every dollar earned.
A common example of how not understanding this can hurt you which we’ve seen in our online doctors’ lounge is physicians thinking that they should negotiate a slightly lower salary as they’re worried a higher salary will bump them into a higher tax bracket, which will mean they’ll end up earning less. For example, they might consider Job #2 that equates to a taxable income of $250,000 for the year versus Job #1 that equates to a taxable income of $275,000 for the year because they believe they’ll pay a tax rate of 35%, or owe $96,250 instead of 32% of $250,000 or $80,000.
This would be true under a flat tax system, but not for a progressive tax system like we have for federal income tax.
With a progressive tax system, the same amount of taxes will be due on the first $250,000 of taxable income earned, regardless of your highest tax rate. In this situation, it’s only the taxable income over $250,525 (for a single flier in 2025) that will owe more in taxes.
Let’s look at this specific example, with a single physician who earned $250,000 in taxable income versus a single physician who earned $275,000 in taxable income for 2025.
For the physician making $250,000 in taxable income:
Taxable Amount | Tax Rate | Tax Amount | Cumulative Tax Amt |
$0 to $11,925 | 10% | $1,192.50 | $1,192.50 |
$11,926 to $48,475 | 12% | $4,386.00 | $5,578.50 |
$48,476 to $103,350 | 22% | $12,072.50 | $17,651.00 |
$103,351 to $197,300 | 24% | $22,548.00 | $40,199.00 |
$197,301 to $250,000 | 32% | $16,864.00 | $57,063.00 |
For $250,000 in taxable income, the total amount of federal income tax is $57,063.
For the physician making $275,000 in taxable income:
Taxable Amount | Tax Rate | Tax Amount | Cumulative Tax Amt |
$0 to $11,925 | 10% | $1,192.50 | $1,192.50 |
$11,926 to $48,475 | 12% | $4,386.00 | $5,578.50 |
$48,476 to $103,350 | 22% | $12,072.50 | $17,651.00 |
$103,351 to $197,300 | 24% | $22,548.00 | $40,199 |
$197,301 to $250,525 | 32% | $17,032 | $57,231 |
$250,526 to $275,000 | 35% | $8,566.25 | $65,797.25 |
For $275,000 in taxable income, the total amount of federal income tax is $65,797.25.
One way to help doctors get a better idea of how marginal tax rates work is to compare your marginal tax rate to your effective tax rate, which is the overall average tax rate you pay when you disperse your taxable income across the different tax brackets.
Your effective tax rate is your total tax due divided by your total taxable income.
For our physician making $250,000, the effective tax rate is: $57,063/$250,000 = 0.228, or 22.8%.
The effective tax rate for our doctor making $275,000 is $65,797.25/$275,000 = 0.239, or 23.9%.
As you can see, while still higher than most doctors would want to pay in taxes, these effective tax rates are significantly less than their marginal tax rates (32% and 35%).
Conclusion
While a marginal tax rate means that high income earners end up paying a higher percentage in taxes than lower income earners, the difference in these tax rates cannot be determined simply by looking at the highest tax bracket, the marginal tax rate. When comparing apples to apples, using the effective tax rate is a better calculation for a progressive tax system.
Marginal tax brackets, on the other hand, help you to determine the amount of tax you’ll pay on each additional dollar you earn, which can help you decide if the lemon is worth the squeeze on making the additional dollar. It can also help you with tax planning and other practical financial concerns, such as making your estimated quarterly tax payments or budgeting for your signing bonus.
Additional Tax Resources for Physicians
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