In Nov 2019, the IRS released the tax brackets and rules for the year 2020-2021. This time the IRS has made specific changes in the tax rates and deductions. The standard deduction amount is raised to $12,400 for both single filers and married couples filing separately. However, married couples filing jointly can deduct $24,800, and those filing as heads of households can deduct $18,650. Moreover, the marginal income tax rate of 37% will be applicable for the taxpayers with a taxable income of $518,400 or higher (for single filers) and $622,050 or higher (for married couples filing jointly). In this article, we will discuss the federal income tax bracket.
Federal Income Tax Bracket
Here you can see the Federal Income Tax Bracket and Rates for 2020-21.
| Tax Rate | For single Individuals | For Married Individual filing jointly | For Married Individuals filing separately | For head of households |
| 10% | $0 to $9,875 | $0 to $19,750 | $0 to $9,875 | $0 to $13,850 |
| 12% | $9,876 to $40,125 | $19,751 to $80,250 | $9,876 to $40,125 | $13,851 to $52,850 |
| 22% | $40,126 to $85,525 | $80,251 to $171,050 | $40,126 to $85,525 | $52,851 to $84,200 |
| 24% | $85,526 to $163,300 | $171,051 to $326,600 | $85,526 to $163,300 | $84,201 to $160,700 |
| 32% | $163,301 to $207,350 | $326,601 to $414,700 | $163,301 to $207,350 | $160,701 to $204,100 |
| 35% | $207,351 to $518,400 | $414,701 to $622,050 | $207,351 to $311,025 | $204,101 to $510,300 |
| 37% | $518,401 or more | $622,051 or more | $311,026 or more | $510,301 or more |
How to Calculate Taxable Income
Calculation of taxable income requires a little bit of mathematics.
- Step I: Find your Gross Income (GI): It includes all the money you made from your various jobs, business, and retirement or investment income.
- Step II: Find adjusted gross income (AGI): Expenses that include student loan interest, moving expenses, tuition fees, and contributions to a traditional IRA. You will also get adjusted gross income by subtracting these expenses from gross income (AGI= Gross Income- Expenses).
- Step III: Deductions: Now, deduct the amount that you’ve paid for state & local taxes, medical expenses, charitable contribution, and any other deductions from gross income.
In this way, you will get the amount of taxable income. You might think that if you make $40,000 per year, by multiplying your tax bracket’s total income, you will get a tax amount that you have to pay. But in the United States, it does not work like that, and a taxpayer has to pay according to the marginal tax rate.
Marginal Tax Rate
MTR or marginal tax rate is an amount of tax paid by a taxpayer on a taxable income. This educates the taxpayer about their tax bracket. If a taxpayer (single filer) has $50,000 of taxable income, then for the first $9,800, they would have to pay a 10% tax rate and 12% for the income between $9,801 to $40,125. Then, the rest of the income will fall under the 22% tax bracket.
How to Fall into a Lower Federal Income Tax Bracket
Here are the two common ways to fall into a lower tax bracket:
- Tax credits: Tax credits directly reduce the amount of tax that a taxpayer owes.
- Tax deductions: Tax deductions can reduce your taxable income and kick you to a lower tax bracket. If you fall into the 22% tax bracket category, a $1,000 tax deduction can save you $220.
