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Tax Brackets 2021: How Much Tax You Owe

This article is CPA Approved Group

Tax brackets are how the IRS determines which income levels get taxed at which federal income tax rates. The higher the income you report on your tax return, the higher your tax rate.

Here we’ll go over the new IRS federal tax brackets for the 2020 tax year, how to figure out which ones you fall into, and give you a heads up about any other inflation-related changes to your taxes in 2020 (filed in 2021).

What are the federal income tax brackets for 2021 filing?

Which tax bracket you fall into in the United States also depends on your filing status. Here are the 2020 tax brackets according to the IRS for the four most common filing statuses: individual single filers, married individuals filing jointly, heads of households, and married individuals filing separately:

Tax rate Individual single filers Married filing jointly or qualifying widow(er) Married filing separately Head of household
10% $0 - $9,950 $0 - $19,900 $0 - $9,950 $0 - $14,200
12% $9,951 - $40,525 $19,901 - $81,050 $9,951 - $40,525 $14,201 - $54,200
22% $40,526 - $86,375 $81,051 - $172,750 $40,526 - $86,375 $54,201 - $86,350
24% $86,376 - $164,925 $172,751 - $329,850 $86,376 - $164,925 $86,351 - $164,900
32% $164,926 - $209,425 $329,851 - $418,850 $164,926 - $209,425 $164,901 - $209,400
35% $209,426 - $523,600 $418,851 - $628,300 $209,426 - $523,600 $209,401 - $523,600
37% $523,600+ $628,300+ $523,600+ $523,600+

How do tax brackets work?

Tax brackets are based on your taxable income, which is what you get when you take all of the money you’ve earned and subtract all of the tax deductions you’re eligible for. (Check out Bench’s Big List of Small Business Tax Deductions for more info.)

Once you’ve calculated your taxable income, it’s time to look at the IRS’s tax rate schedule—a fancy term for ‘big list of tax system brackets’—for the year you’re doing your taxes for.

(Keep in mind, these brackets are for income tax only; capital gains tax uses its own set of brackets.)

Let’s take the IRS tax brackets for individual single filers in 2021:

Tax rate Total taxable income
10% $0 - $9,950
12% $9,951 - $40,525
22% $40,526 - $86,375
24% $86,376 - $164,925
32% $164,926 - $209,425
35% $209,426 - $523,600
37% $523,600+

Unless you made $9,875 or less in taxable income in 2020, it’s likely you fall into at least two brackets. This means different parts of your income is taxed at a different rate.

For example, let’s say that your taxable income ends up being $20,000. That means you’ll fall into two different tax brackets and get taxed at two different rates:

  • the $0 - $9,950 bracket, which taxes you at 10%

  • the $9,951 - $40,525 bracket, which taxes you at 12%

So you’ll pay two different tax rates: 10% on the first $9,950 ‘chunk’ of your income, and 12% on every dollar you made above $9,950.

In equation form, we’d write this out as:

Total tax = (10% x $9,950) + (12% x [$20,000-$9,950])

Total tax = $995.00 + $1,206.00

Total tax bill = $2,202.00

We call the highest tax rate that you pay your marginal tax rate. In this example, your marginal tax rate is 12%.

How do I calculate my taxes using these tax brackets?

The math involved in calculating how much you owe from each ‘chunk’ of income can get complicated. To make things easier, here are four cheat sheets for determining the amount of tax you need to pay, organized by filing status:

Individual single filers

Remember: if on the last day of 2020 you were unmarried or legally separated from your spouse—and you don’t qualify for another filing status—you file your taxes in 2021 as an individual single taxpayer.

Here’s how much you are taxed:

If your total taxable income for 2020 was… Then your taxes are…
$0 - $9,950 10% of your taxable income
$9,950 - $40,525 $995.00 plus 12% of any income you made above $9,950
$40,526 - $86,375 $4,664.00 plus 22% of any income you made above $40,525
$86,376 - $164,925 $14,750.78 plus 24% of any income you made above $86,375
$164,926 - $209,425 $33,602.54 plus 32% of any income you made above $164,925
$209,426 - $523,600 $47,842.22 plus 35% of any income you made above $209,425
$523,600+ $157,803.12 plus 37% of any income you made above $523,600

Married filing jointly or qualifying widow(er)

If you’re married and both you and your spouse agree to file a joint return, or you’re a qualifying widow(er), use the following to figure out your taxes for 2020:

If your total taxable income for 2020 was… Then your taxes are…
$0 - $19,900 10% of your taxable income
$19,901 - $81,050 $1,990.00 plus 12% of any income you made above $19,900
$81,051 - $172,750 $9,327.88 plus 22% of any income you made above $81,051
$172,751 - $329,850 $29,501.66 plus 24% of any income you made above $172,751
$329,851 - $418,850 $67,205.42 plus 32% of any income you made above $329,851
$418,851 - $628,300 $95,685.10 plus 35% of any income you made above $418,851
$628,300+ $168,992.25 plus 37% of any income you made above $628,300

Married filing separately

If you’re married and you decide that filing individually could lower your tax burden, or you and your spouse don’t agree to file a joint return, you’ll use this filing status.

Here’s how much married individuals filing separately are taxed on income in 2020:

If your total taxable income for 2020 was… Then your taxes are…
$0 - $9,950 10% of your taxable income
$9,950 - $40,525 $995.00 plus 12% of any income you made above $9,950
$40,526 - $86,375 $4,664.00 plus 22% of any income you made above $40,525
$86,376 - $164,925 $14,750.78.16 plus 24% of any income you made above $86,375
$164,926 - $209,425 $33,602.54 plus 32% of any income you made above $164,925
$209,426 - $523,600 $47,842.22 plus 35% of any income you made above $209,425
$523,600+ $157,803.12 plus 37% of any income you made above $523,600

Head of household

If you:

  • Are unmarried
  • Paid more than half the cost of keeping up a home for the year
  • Live with a qualifying person for more than half the year

Then you might qualify for the “head of household” filing status. If so, use the following to figure out your taxes on income in 2020:

If your total taxable income for 2020 was… Then your taxes are…
$0 - $14,200 10% of your taxable income
$14,201 - $54,200 $1,420 plus 12% of any income you made above $14,200
$54,201 - $86,350 $6,219.88 plus 22% of any income you made above $54,200
$86,351 - $164,900 $13,292.66 plus 24% of any income you made above $86,350
$164,901 - $209,400 $32,144.42 plus 32% of any income you made above $164,900
$209,401 - $523,600 $46,384.10 plus 35% of any income you made above $209,400
$523,600+ $156,353.75 plus 37% of any income you made above $523,600

Why do tax brackets change every year?

If you compare this year’s tax brackets to the ones from previous years, you might notice they’ve all been slightly adjusted. Why is that?

It all has to do with inflation. Every year the IRS tweaks the tax brackets to prevent “bracket creep,” which is what happens when inflation pushes you into a higher tax bracket.

If you haven’t looked up your bracket since 2017, there’s a major tax reform you should look out for. The Tax Cuts and Jobs Act passed in December of 2017 changed the way the IRS calculates inflation, which will mean smaller annual inflation adjustments down the road.

That increases your chances of getting bumped up into a higher tax bracket every year. If you just barely avoided entering a higher tax bracket this year and think you might be a borderline case next year, make sure to follow the IRS’s inflation adjustment announcements closely.

What are some other inflation adjustments I should look out for?

We mentioned earlier that the IRS’s tax brackets apply to your taxable income, which is what you get when you apply certain adjustments and deductions to your revenue.

One other way that the IRS helps guard against bracket creep is by adjusting the values of deductions to keep up with inflation. Here are the main ones you should look out for:

The standard deduction

Your standard deduction—the portion of your income that is protected from taxes—gets adjusted every year to keep up with inflation. The standard deduction amounts for the 2021 tax year (and their increases from the 2020 tax year) are:

  • $12,550 for single filers (up $150)
  • $12,550 for married taxpayers who file their taxes separately (up $150)
  • $18,800 for heads of households (up $150)
  • $25,100 for married taxpayers who file jointly (up $300)
  • $25,100 for qualifying widows or widowers (up $300)

Adjustments to income

Adjustments are a special kind of deduction that lets you reduce your taxable income even before you start applying the standard deduction or itemizing. You can find a summary of all the updated adjustment figures on the IRS website here.

Tax credits

Unlike deductions, which reduce your taxable income, tax credits directly reduce your tax amount owed. Tax credits that the IRS adjusted for inflation this year include:

The earned income credit increased to a range of $543 to $6,728 depending on your filing status and the number of children you have. This is up slightly from $538 to $6,660 from last year. See pages 12 and 13 of this revenue procedure for a full list of categories and thresholds.

The adjusted gross income (AGI) at which you start to lose the lifetime learning credit is $59,000 in 2021 for single filers, same as 2020. But for married couples filing jointly, the credit starts to phase out when your 2021 AGI reaches $119,000, up from $118,000 in 2020.

The maximum amount of qualified adoption expenses you can use to determine your adoption credit increased to $14,300 per child, up from $14,080 in 2020.

The refundable child tax credit remains $1,400, the same as in 2020.

Further Reading:

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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