Tax Brackets 2020 – Everything You Need To Know

If you make more money in the United States – surprise – you’ll also pay more taxes. The tax brackets for the United States are progressive – meaning the more you make, the higher the % that goes to Uncle Sam.

While there are also other taxes (most notably state taxes), today we will be giving you an exhaustive look at the tax brackets for 2020 – and how they will impact your taxable income.

Tax Brackets 2020 (And Federal Income Tax Rates)

Every year, the Internal Revenue Service (IRS) adjusts more than 40 tax provisions according to inflation. This practice is done in order to prevent the so-called “bracket creep” from taking place.

Bracket creep takes place when taxpayers are forced into higher income tax brackets or the value from their deductions and credits decreased because of inflation, rather than any increase in the real income.

Before, the Internal Revenue Service used the Consumer Price Index (or CPI) in calculating the past year’s inflation. However, since the Tax Cuts and Jobs Act of 2017 came into action, the IRS started using the Chained Consumer Price Index or C-CPI in adjusting deduction amounts, income thresholds and credit values accordingly.

In 2020, the income limits for all tax brackets and filers will be adjusted accordingly for inflation. You will be able to see how much your income tax will be by referring to the tables below.

Take note that these tax rates are set to be due in April 2021:

Table 1: Tax Rate For Single Filers (Source: Internal Revenue Services)

Tax rate

Taxable income bracket

Tax owed

10%

$0 to $19,750

10% of taxable income

12%

$19,751 to $80,250

$1,975 plus 12% of the amount over $19,750

22%

$80,251 to $171,050

$9,235 plus 22% of the amount over $80,250

24%

$171,051 to $326,600

$29,211 plus 24% of the amount over $171,050

32%

$326,601 to $414,700

$66,543 plus 32% of the amount over $326,600

35%

$414,701 to $622,050

$94,735 plus 35% of the amount over $414,700

37%

$622,051 or more

$167,307.50 plus 37% of the amount over $622,050

Table 2: Tax Rate For Married, Filing Separately (Source: Internal Revenue Services)

Tax rate

Taxable income bracket

Tax owed

10%

$0 to $9,875

10% of taxable income

12%

$9,876 to $40,125

$987.50 plus 12% of the amount over $9,875

22%

$40,126 to $85,525

$4,617.50 plus 22% of the amount over $40,125

24%

$85,526 to $163,300

$14,605.50 plus 24% of the amount over $85,525

32%

$163,301 to $207,350

$33,271.50 plus 32% of the amount over $163,300

35%

$207,351 to $311,025

$47,367.50 plus 35% of the amount over $207,350

37%

$311,026 or more

$83,653.75 plus 37% of the amount over $311,025

Table 3: Tax Rate For Married, Filing Jointly (Source: Internal Revenue Services)

Tax rate

Taxable income bracket

Tax owed

10%

$0 to $19,750

10% of taxable income

12%

$19,751 to $80,250

$1,975 plus 12% of the amount over $19,750

22%

$80,251 to $171,050

$9,235 plus 22% of the amount over $80,250

24%

$171,051 to $326,600

$29,211 plus 24% of the amount over $171,050

32%

$326,601 to $414,700

$66,543 plus 32% of the amount over $326,600

35%

$414,701 to $622,050

$94,735 plus 35% of the amount over $414,700

37%

$622,051 or more

$167,307.50 plus 37% of the amount over $622,050

Table 3: Tax Rate For Head Of Household (Source: Internal Revenue Services)

Tax rate

Taxable income bracket

Tax owed

10%

$0 to $14,100

10% of taxable income

12%

$14,101 to $53,700

$1,410 plus 12% of the amount over $14,100

22%

$53,701 to $85,500

$6,162 plus 22% of the amount over $53,700

24%

$85,501 to $163,300

$13,158 plus 24% of the amount over $85,500

32%

$163,301 to $207,350

$31,830 plus 32% of the amount over $163,300

35%

$207,351 to $518,400

$45,926 plus 35% of the amount over $207,350

37%

$518,401 or more

$154,793.50 plus 37% of the amount over $518,400

Everything You Need To Know About Tax Brackets

The United States adopted a progressive tax system, which means that those who have higher taxable incomes also pay higher federal income tax rates. Here are some of the other key findings you should know about, in order to understand tax brackets better.

  • First and foremost, it is very important to know that if you are included in the tax bracket, it doesn’t necessarily mean that you have to pay the federal income tax rate on all the money you generate. The progressive tax system is a guide so that people will pay an amount of tax with regards to how much income they make.
  • This means that the higher a person’s taxable income is, the higher federal tax rates he or she needs to pay. On the other hand, the lower a person’s taxable income is, the lower federal tax rates will apply.
  • The government is the one who discerns how much tax do you owe by simply dividing your taxable income into chunks, which are the so-called tax brackets. The benefit of this practice is that you won’t have to pay the tax rate on your entire income.
  • The marginal tax rate is the tax rate that you need to pay when you have one more dollar of taxable income: this also usually follows your tax bracket. For example, if you are an individual filer with $19,000 worth of taxable income, you need to pay 10% of tax according to the tax table.
  • Let us say that your taxable income will increase by a dollar; then you have to pay 10% of $1 as well.

How To Get Into A Lower Tax Bracket

Credits and deductions are the two ways that can help reduce your tax bills. Tax credits reduce the tax you owe directly, but that doesn’t affect your tax bracket.

Meanwhile, tax deductions reduce the part of your income that is subject to taxes.

Basically, it decreases your taxable income by your highest federal income percentage. Hence, falling into the 22% tax bracket could save you $200 on a $1,000 deduction.

In short, claiming tax deductions can help lower your tax bracket by reducing your taxable income. A standard deduction will draw a little more notice from the IRS, however, so make sure you don’t make any fraudulent deductions – only standard deductions that can be backed up with evidence.

Why Do We Need To Pay Income Tax?

According to the law, every business and citizen has a tax obligation – this means that every single one of us must pay our taxes accordingly. However, why are we obliged to pay taxes to begin with?

Our taxes fund government projects to make our country better. Aside from this, it is also used to pay government obligations and provide for the other citizens of the country, especially those in the marginalized sector.

Each tax year, things like roads, public buildings, parks, libraries, and much more – are all funded by taxpayers. While it sounds good to avoid filing income tax – if we all did it, our society would quickly collapse.

Other Factors To Consider

There are a myriad of factors to consider when it comes to properly filing your taxes. For example, married filing of taxes can mean you must register as joint filers – but this is also not required if you’re married.

You can still file separately, if you so desire. Married couples may also have a qualifying child, which will impact their federal tax filing.

If you have a student loan, your taxes can again be impacted. A student loan usually has a long time period before it needs to be paid off in full, so you may want to inquire with a professional about the potential tax ramifications of this.

No matter what your filing status is, unless tax reform is passed, we all need to pay our part. Taxable income is usually considered almost any money we make – but a qualified professional may be able to help reduce your overall taxable income.

The Bottom Line On Tax Brackets

No matter how much money you make, you will need to pay taxes. Regardless of your filing status, no matter if you made money through capital gains, have ordinary income, or receive social security – you have to follow the tax code.

The effective tax rate for your state may differ from other states – but federal tax brackets still apply universally. Married couples may be able to file more expenses as deductible (which is a better deal than single taxpayers get) – but there are different rates for different situations.

Higher tax might sound bad – but remember, taxes pay for public programs, roads, and other essentials. It’s also important to get your tax filings right – that’s why we recommend utilizing a highly qualified tax professional.

They will be able to accurately calculated your adjusted gross income, find a personal exemption (if one exists), they are better suited to understand complex topics like the capital gains tax, and will generally be much more beneficial than online tax software.

No matter if you’re in low tax brackets or high tax brackets – it’s important to file your federal taxes accurately.

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