Depending on your income, the government decides how much of it can be contributed towards the development and maintenance of your nation. The Federal Income Tax Rates have been a topic of contention ever since they came into existence. However, it was in the year 1986, that it became structured.
Ever since this year, the federal income tax rates and brackets change annually. This is directly related to the projected spends of the country and how much is required by the government in order to keep up with the expenses.
To that effect, in this article, we would be discussing the current income tax rates and brackets announced by the federal government:
Current Income Tax Rates and Brackets:
Currently, the federal government has categorized the brackets and tax rates in seven different slabs. These rates range from about ten percent to thirty-seven percent. To be eligible for this tax rate, you need to first have a taxable income. A lot of people are not acquainted with the concept of taxable income.
Understanding Taxable Income:
Taxable income is nothing but adjusted gross income after subtracting the eligible itemized deductions or the normal deduction. So, income that is below the standard rate of deduction is not taxable. However, anything above it reaches the eligibility for being taxed.
Current Income Tax Rates: Numbers
For the year 2020, the decided federal tax brackets are as follows:
- 10%
- 12%
- 22%
- 24%
- 32%
- 35%
- 37%
The bracket is dependant on the kind of taxable income and also the filing status of the individual.
Now, what is important to understand here is that when people refer to income tax rates for the year 2020, they are either referring to the income that needs to be filed in the year 2020 or the year 2020. So, for income that needs to be filed in the year 2020 is the income that is earned in 2018. Income earned in 2020 needs to be filed in the year 2020. We would be covering both of these in the following sections:
2020 Federal Income Tax Brackets:
One thing that is great about our system is that the income of the individuals is segregated based on their probable financial responsibility. The taxable income for single individuals is different from a couple that files their taxes together.
Similarly, the allowed taxable income is different for the main earner of the family (head of household) and even for married couples that are filing the taxes separately. The following section would cover these in detail:
The following numbers are eligible for taxes due in April of 2020.
1. Tax rate: 10%
- For single individuals: 0 USD to 9,700 USD
- Married couples, who are filing jointly: 0 USD to 19,400 USD
- Married couple, filing separately: 0 USD to 9,700 USD
- Head of the household: 0 USD to 13,850 USD
2. Tax rate: 12%
- For single individuals: 9,701 USD to 39,475 USD
- Married couples, who are filing jointly: 19,401 USD to 78,950 USD
- Married couple, filing separately: 9,701 USD to 39,475 USD
- Head of the household: 13,851 USD to 52,850 USD
3. Tax rate: 22%
- For single individuals: 39,476 USD to 84,200 USD
- Married couples, who are filing jointly: 78,951 USD to 168,400 USD
- Married couple, filing separately: 39,476 USD to 84,200 USD
- Head of the household: 52,851 USD to 84,200 USD
4. Tax rate: 24%
- For single individuals: 84,201 USD to 160,725 USD
- Married couples, who are filing jointly: 168,401 USD to 321,450 USD
- Married couple, filing separately: 84,201 USD to 160,725 USD
- Head of the household: 84,201 USD to 160,700 USD
5. Tax rate: 32%
- For single individuals: 160,726 USD to 204,100 USD
- Married couples, who are filing jointly: 321,451 USD to 408,200 USD
- Married couple, filing separately: 160,726 USD to 204,100 USD
- Head of the household: 160,701 USD to 204,100 USD
6. Tax rate: 35%
- For single individuals: 204,101 USD to 510,300 USD
- Married couples, who are filing jointly: 408,201 USD to 612,350 USD
- Married couple, filing separately: 204,101 USD to 306,175 USD
- Head of the household: 204,101 USD to 510,300 USD
7. Tax rate: 37%
- For single individuals: 510,301 USD or more
- Married couples, who are filing jointly: 612,351 USD or more
- Married couple, filing separately: 306,176 USD or more
- Head of the household: 510,301 USD or more
Read More: Pros And Cons Of Paying Taxes With Credit Cards
2018-2019 Federal Income Tax Brackets:
These were the rates valid for the income of individuals in 2018. The tax paid in the year 2020 was based on these slabs:
1. Tax rate: 10%
- For single individuals: 0 USD to 9,525 USD
- Married couples, who are filing jointly: 0 USD to 19,050 USD
- Married couple, filing separately: 0 USD to 9,525 USD
- Head of the household: 0 USD to 13,600 USD
2. Tax rate: 12%
- For single individuals: 9,526 USD to 38,700 USD
- Married couples, who are filing jointly: 19,051 USD to 77,400 USD
- Married couple, filing separately: 9,526 USD to 38,700 USD
- Head of the household: 13,601 USD to 51,800 USD
3. Tax rate: 22%
- For single individuals: 38,701 USD to 82,500 USD
- Married couples, who are filing jointly: 77,401 USD to 165,000 USD
- Married couple, filing separately: 38,701 USD to 82,500 USD
- Head of the household: 51,801 USD to 82,500 USD
4. Tax rate: 24%
- For single individuals: 82,501 USD to 157,500 USD
- Married couples, who are filing jointly: 165,001 USD to 315,000 USD
- Married couple, filing separately: 82,501 USD to 157,500 USD
- Head of the household: 82,501 USD to 157,500 USD
5. Tax rate: 32%
- For single individuals: 157,501 USD to 200,000 USD
- Married couples, who are filing jointly: 315,001 USD to 400,000 USD
- Married couple, filing separately: 157,501 USD to 200,000 USD
- Head of the household: 157,501 USD to 200,000 USD
6. Tax rate: 35%
- For single individuals: 200,001 USD to 500,000 USD
- Married couples, who are filing jointly: 400,001 USD to 600,000 USD
- Married couple, filing separately:200,001 USD to 500,000 USD
- Head of the household: 200,001 USD to 500,000 USD
7. Tax rate: 37%
- For single individuals: 500,001 or more
- Married couples, who are filing jointly: 600,001 USD or more
- Married couple, filing separately: 500,001 or more
- Head of the household: 500,001 USD or more
Understanding How Tax Brackets Work
One of the biggest advantages of the U.S.A tax system is that it is quite progressive. People who have a higher taxable income basically end up paying a higher federal tax rate, and this is based on what kind of economic condition they are in. Here are some additional points to remember regarding this system:
You don’t end up paying a Tax on all your income
One common myth around the federal tax system is that everything you make is taxable. There are certain itemized deductions considered so that the system remains as fair as possible.
Your Taxable income is further divided into chunks to be fair
This is what we know as tax brackets. Each chunk has a tax rate corresponding to it. You will pay exactly how much you are eligible for, not more, and not less.
Your tax rates may differ based on the state you are residing in
The above-mentioned rates are only federal rates. Your tax rates may also differ based on the state you are in. They may have additional tax brackets, or maybe even no income tax at all.
Other Important pointers to Remember
Most people want to ensure that they end up saving as much tax as possible. Here are two ways through which you may be able to attain the same:
-
Tax credits:
Through tax credits, you would be able to reduce the entire amount of the tax you owe to the government; irrespective of the bracket you belong to.
-
Tax Deductions:
Ensure that all your eligible itemized deductions are taken into consideration. The percentage of the tax bracket may be reduced easily. In case you fall into the 22% tax bracket, and you can show a tax deduction of up to 10,000 USD, then you may be able to save up nearly 2200 USD in total.
Basically, ensure that you opt for all possible tax deductions. This can help you reduce income and also help you in paying a lower rate of income tax.
Read More:
How To Reduce Capital Gains Tax (CGT Rates)
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