Understanding how tax brackets work is foundational to any tax planning conversation. But for self-employed individuals and business owners, the picture is more complex than it is for W-2 employees — because income tax is only part of the obligation. Self-employment tax, deductions that reduce adjusted gross income, and the qualified business income deduction all interact before you arrive at your actual tax bill.

This article covers the 2025 federal income tax brackets, how self-employment tax layers on top, and the key deductions that reduce taxable income before the brackets apply. These figures are updated annually for inflation — this version reflects the IRS adjustments effective for tax year 2025.

2025 Federal Income Tax Brackets

The IRS adjusts tax brackets annually for inflation. For tax year 2025, the brackets for the two most common filing statuses are:

Single Filers

• 10% — Taxable income up to $11,925
• 12% — $11,926 to $48,475
• 22% — $48,476 to $103,350
• 24% — $103,351 to $197,300
• 32% — $197,301 to $250,525
• 35% — $250,526 to $626,350
• 37% — Over $626,350

Married Filing Jointly

• 10% — Taxable income up to $23,850
• 12% — $23,851 to $96,950
• 22% — $96,951 to $206,700
• 24% — $206,701 to $394,600
• 32% — $394,601 to $501,050
• 35% — $501,051 to $751,600
• 37% — Over $751,600

These are marginal rates. If you are a single filer with $120,000 of taxable income, you do not pay 24% on all of it — you pay 10% on the first $11,925, 12% on the next portion, 22% on the next, and 24% only on the amount above $103,350.

Self-Employment Tax: The Layer on Top

Before income tax brackets apply, self-employed individuals owe self-employment (SE) tax on net self-employment income. SE tax covers Social Security and Medicare — the same taxes that employees split with their employer, but paid entirely by the self-employed person.

• Social Security: 12.4% on net self-employment income up to $176,100 (2025 wage base)
• Medicare: 2.9% on all net self-employment income, no cap
• Additional Medicare: 0.9% on net self-employment income above $200,000 (single) or $250,000 (MFJ)

The combined SE tax rate is 15.3% up to the Social Security wage base, then 2.9% above it. However, you can deduct half of SE tax from gross income — reducing your adjusted gross income and therefore your income tax liability.

The 2025 Standard Deduction

The standard deduction for 2025 is $15,000 for single filers and $30,000 for married filing jointly. This is subtracted from adjusted gross income to arrive at taxable income — the figure the brackets actually apply to.

Most self-employed individuals reduce their AGI further before the standard deduction through above-the-line deductions: half of SE tax, retirement plan contributions (SEP-IRA, Solo 401(k)), and self-employed health insurance premiums. These deductions can meaningfully lower the bracket at which income is taxed.

The Qualified Business Income (QBI) Deduction

Eligible self-employed individuals and pass-through business owners may deduct up to 20% of qualified business income under Section 199A. This deduction reduces taxable income — not AGI — and is taken in addition to the standard deduction.

The QBI deduction phases out for certain service businesses (including accounting, law, and consulting) at higher income levels. For 2025, the phase-out begins at $197,300 for single filers and $394,600 for married filing jointly. Below those thresholds, most self-employed individuals qualify for the full 20% deduction.

New York State and City Taxes

Federal brackets are only part of the picture for New York business owners. New York State income tax rates range from 4% to 10.9% depending on income level. New York City residents pay an additional city income tax of 3.078% to 3.876%. Self-employed individuals in NYC can face a combined marginal rate — federal, state, and city — exceeding 50% at higher income levels.

This is why tax planning matters more in New York than in most other states. The deductions that reduce federal taxable income generally also reduce New York State taxable income, making retirement contributions and other above-the-line deductions especially valuable for NYC-based business owners.

Why These Numbers Change Every Year

The IRS adjusts tax brackets, the standard deduction, and various thresholds annually for inflation under a process called indexing. The adjustments are typically announced in October or November for the following tax year. For planning purposes, the figures above apply to income earned in 2025 (filed in 2026). If you are reading this in a later year, verify the current figures with the IRS or a tax professional.