Before filing your returns with the IRS, you should know your income tax bracket and the tax rates. Do you want to know yours? Well, this article helps you to know your income tax brackets federal.
Every US resident must file returns with the IRS every year. Failing to file returns puts you at risk. It’s always a great idea to know the income tax brackets federal before filing your returns. It’s worthy to note that tax brackets and rates don’t remain constant through the years.
The IRS adjusts more than 40 tax provisions each year for inflation. These adjustments help in preventing “bracket creep.”For instance, the federal income tax bracket and tax rate for 2019 differ from the ones released for 2020.
In 2020, all the seven tax rates (have remained unchanged (10%, 12%, 22%, 24%, 32%, 35%, and 37%), but the income tax bracket has been altered for inflation.
The tax rates are done using a marginal basis. This means that you’re taxed differently on the same income, depending on different levels. For instance, let’s say you’re not married, and you earn $40,000 in 2020. Your first $9,875 will be taxed at a rate of 10%, while the other income above $9,875 will be taxed at 12%.
The new tax bracket will affect the filing of returns in 20121.
The Federal Income tax Brackets for 2020
|Tax Rate||Tax Bracket|
|Single||Married, but filing separately||Married, but filing jointly||Household head|
|10%||$0 up to $9,875||$0 up to $9,875||$0 up to $19,750||$0 up to $14,100|
|12%||$9,876 up to $40,125||$9,876 up to $40,125||$19,751 up to $80,250||$14,101 up to $53,700|
|22%||$40,126 up to $85,525||$40,126 up to $85,525||$80,251 up to $171,050||$53,701 up to $85,500|
|24%||$85,526 to $163,300||$85,526 up to $163,300||$171,051 up to $326,600||$85,501 up to $163,300|
|32%||$163,301 up to $207,350||$163,301 up to $207,350||$326,601 up to $414,700||$163,301 up to $207,350|
|35%||$207,351 up to $518,400||$207,351 up to $311,025||$414,701 up to $622,050||$207,351 up to $518,400|
|37%||$518,401 and above||$311,026 and above||$622,051 and above||$518,401 and above|
How Does the Federal tax Bracket Work?
First off, IRS charges tax on a progressive system. That’s to mean, the more you earn, the more you pay higher federal income rate tax.
Again, tax brackets may seem intuitive, but they are not. This is because most taxpayers have to consider more than one tax bracket to arrive at their tax rate.
If your income lies in a particular bracket, that doesn’t mean you’ll pay the tax rate of the amount that you earn. This progressive tax system is set that way purposely to ensure that people with higher income pay higher federal tax rates, while those with lower income are subjected to lower federal tax rates.
Therefore, the government, through IRS, decides the amount of tax you should pay by breaking down your taxable income into portions (which are referred to as tax brackets). Each portion now is subject to a different tax rate.
One of the amazing this about this tax system is that you won’t pay a given tax rate on your entire income regardless of the tax bracket you are in.
For example, let’s assume you’re married,but you file return separately, and you’ve earned $60,000.
Here is what happens: you’ll pay 10% on the first $9,875 ($98.75); then 12% on the next tax bracket of the earning between 9,876 to $40,125 ($2521); then 22% on the remaining income up to $60,000 ($903).
When you calculate the total, you’ll arrive at $3,522.75. Divide the answer you’ve got with your earning ($60,000 in our case), and your tax will be 5.9%- a rate lower than your tax bracket. This rate is referred to as Effective Tax Rate.
How to Land in a Lower tax Bracket
There are two common and primary ways to cut your tax bill.
Tax credits: they directly reduce the amount you owe to IRS.It should be clear that they don’t affect the tax bracket you are in. If you owe $1,000 tax bill but are eligible for $250 in tax credits, then your bill drops to $750.
Tax reductions: contrary to tax credits, tax deduction reduces the amount of your taxable income. In other words, tax deduction will lower the amount of income you to be taxed by the percentage of your highest tax bracket. For example, if you fall under a tax bracket of 24%, a $1,000 deduction saves you $240.
In conclusion, tax credits can help you reduce your tax more than tax reductions. The federal government offers tax credits to people buying solar panels for their houses. Also, a person adopting a kid receives tax credits.
Feel free to check out Tax Dead Lines and Dates You Have to Memorize