As anyone who has ever filed income taxes can tell you, you have to know which tax bracket you’re in before you can make even an educated guess of what you might owe Uncle Sam.
It’s pretty easy to figure out your tax bracket because it’s based on your income, but it’s trickier to calculate how much you’ll actually owe because of the way the U.S. tax system works. We’ll explain how to do that in a moment. But first, here are the tax brackets for 2021, represented as the percentage of tax you’d pay on each portion of your income (more on that later).
2021 TAX BRACKETS
If you’re single (known as an individual filer), your brackets are:
10 percent: Up to $9,950
12 percent: $9,951 to $40,525
22 percent: $40,526 to $86,375
24 percent: $86,376 to $164,925
32 percent: $164,926 to $209,425
35 percent: $209,426 to $523,600
37 percent: Over $523,600
People who are married, but file separately (known as married filing separately), have the same tax brackets as individual filers until the top two. Those amounts are:
35 percent: $209,426 to $314,150
37 percent: Over $314,150
If you’re married and file a single tax return as a couple (known as married filing jointly), your brackets are:
10 percent: Up to $19,900
12 percent: $19,901 to $81,050
22 percent: $81,051 to $172,750
24 percent: $172,751 to $329,850
32 percent: $329,851 to $418,850
35 percent: $418,851 to $628,300
37 percent: Over $628,300
If you’re unmarried, pay for more than half your household’s expenses and have a dependent (known as head of household), your brackets are:
10 percent: Up to $14,200
12 percent: $14,201 to $54,200
22 percent: $54,201 to $86,350
24 percent: $86,351 to $164,900
32 percent: $164,901 to $209,400
35 percent: $209,401 to $523,600
37 percent: Over $523,600
YOUR MARGINAL TAX BRACKET VS. YOUR EFFECTIVE TAX RATE
So what you owe in taxes is the income on your W-2 form multiplied by your tax bracket percentage, right? Not so fast.
For starters, the income on your W-2 isn’t likely to be the amount that you’re actually taxed on. That’s because when you file, you’re probably going to take deductions that will lower your taxable income, whether that’s the standard deduction or a host of other deductions you choose to itemize on your tax return. Your 1040 form helps you determine what your taxable income will be.
Second, the U.S. income tax system is a progressive tax, not a flat tax. That means as your income rises, so does the percentage that you pay in taxes — and your income is actually taxed in chunks at graduated rates that follow the steps of the tax brackets.
Here’s a simple example of what we mean. Let’s say you’re single and after deductions, your taxable income is $50,000, which lands you in the 22 percent tax bracket. You won’t be paying 22 percent on all $50,000. Rather …
• The first $9,950 will be taxed at 10 percent, which equals $995
• The dollars between $9,951 and $40,525 (or $30,574) will be taxed at 12 percent, or about $3,669.
• The dollars between $40,526 and $50,000 (or $9,474) will be taxed at 22 percent, or about $2,084.
So in this example, your total tax owed would be $6,748.
Your marginal tax bracket is the tax rate you paid on your last dollar of income and is how you determine which tax bracket you’re in. Your effective tax rate, meanwhile, is the percentage of your income that you paid in taxes after all was said and done — in this case, about 13 percent ($6,748/$50,000).
CHANGING TAX BRACKETS
Of course, your tax bracket and effective tax rate aren’t something that you figure out once and then never again. For instance, when you get a raise, it could push you into the next higher tax bracket. On the flip side, if your income drops or you become eligible to take more deductions, you could fall into a lower tax bracket. Also, keep in mind your bracket could change because the IRS can change the income ranges that apply to each bracket, or because the government can enact new legislation. So make sure you check each year to see what the new tax brackets are, and how that could impact the amount you will pay.
This publication is not intended as legal or tax advice. Consult with a tax professional for tax advice specific to your situation.