Taxes 101 — W-2, 1099, Deductions
How US federal income tax actually works: marginal brackets, withholding, two big employment forms, and the standard vs itemized choice.
The marginal-bracket fundamental
Your tax bracket is the rate paid on your last dollar — not on every dollar. The US system is progressive: each chunk of income is taxed at its own rate.
A $100k earner in the 22% bracket doesn't pay 22% on all $100k. They pay 10% on the first slice, 12% on the next, and 22% only on the slice above $48,475 (single, 2025).
Marginal vs effective
Marginal rate — the rate on your next dollar. Useful for deciding whether more income or a deduction is worth pursuing.
Effective rate — total tax ÷ total income. Always lower than your top marginal rate. The real fraction of income that goes to federal tax.
2025 federal brackets (filing in 2026)
Single filer · published by the IRS in Rev. Proc. 2024-40. Bracket thresholds update annually for inflation.
Federal tax estimator
| Gross income | — |
| − Pre-tax retirement | — |
| = AGI | — |
| − Deduction | — |
| = Taxable income | — |
| Federal income tax | — |
| Marginal rate (top bracket) | — |
| State income tax (est.) | — |
| Effective rate (tax ÷ gross) | — |
| Effective rate (fed+state) | — |
W-2 vs 1099 — the two big employment forms
W-2 — Employee
You work for a company. They withhold tax and pay half your payroll tax. Year-end W-2 form summarizes your wages and withholding.
1099 — Independent contractor
You're a separate business. The payer sends a 1099 form, but no tax is withheld — you owe it directly and pay BOTH halves of FICA.
Common deductions, credits & adjustments
Standard deduction
Flat amount everyone can take. 2025: $15,750 single / $31,500 MFJ. Most filers take this.
SALT (itemized)
State and local taxes paid — capped at $10,000 under the 2017 TCJA; the 2025 OBBBA raised the cap to $40,000 for 2025–2029 (reverts to $10,000 in 2030).
Mortgage interest (itemized)
Interest on up to $750k of mortgage debt for primary & secondary homes.
Charitable gifts (itemized)
Cash + property to qualified 501(c)(3) organizations. Limits apply by AGI.
HSA contributions
Triple-tax-free for high-deductible health plans. 2025: $4,300 single / $8,550 family.
401(k) / traditional IRA
Pre-tax retirement contributions reduce taxable income today.
Student loan interest
Up to $2,500 deduction (phases out at higher AGI).
Child Tax Credit
$2,200 per qualifying child under 17 for 2025 (partially refundable). Phases out at higher income.
Earned Income Credit
Refundable credit for low-to-moderate earners. Up to ~$8,046 with 3+ kids (2025).
Credit vs Deduction
Credit = $1-for-$1 off your tax bill. Deduction = lowers taxable income only.
Connect the dots
Quiz
15 questions on US federal income tax.
Flashcards
Tap to flip. Key tax terms.
Teacher mode
Lesson outline, quick reference, and a printable worksheet with answer key.
Lesson outline (40 min)
- 5 min · Hook — "If you earn $100,000, what tax rate do you pay?" Most students guess 24% or 32%. Real effective rate is ~14% (single, std deduction).
- 10 min · Brackets — Walk the 7 federal brackets. Emphasize: marginal ≠ effective.
- 10 min · Estimator — Have students compute their own (or a fictional) tax. Toggle deductions and 401(k) to show direct impact.
- 10 min · W-2 vs 1099 — Use the comparison panel. Cover self-employment tax surprise (15.3% on top of income tax).
- 5 min · Wrap — Distinction between a deduction (lowers taxable income) and a credit (dollar-for-dollar off the bill).