The U.S. has a progressive tax system, which means that as you move up the pay scale, you also move up the tax scale. There are seven tax brackets for most ordinary income: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent.
Your tax bracket depends on your taxable income and your filing status: single, married filing jointly or qualifying widow(er), married filing separately, and head of household.
| Tax rate | Single | Head of household | Married filing jointly or qualifying widow | Married filing separately |
|---|---|---|---|---|
| Source: IRS | ||||
| 10% | $0 to $9,875 | $0 to $14,100 | $0 to $19,750 | $0 to $9,875 |
| 12% | $9,876 to $40,125 | $14,101 to $53,700 | $19,751 to $80,250 | $9,876 to $40,125 |
| 22% | $40,126 to $85,525 | $53,701 to $85,500 | $80,251 to $171,050 | $40,126 to $85,525 |
| 24% | $85,526 to $163,300 | $85,501 to $163,300 | $171,051 to $326,600 | $85,526 to $163,300 |
| 32% | $163,301 to $207,350 | $163,301 to $207,350 | $326,601 to $414,700 | $163,301 to $207,350 |
| 35% | $207,351 to $518,400 | $207,351 to $518,400 | $414,701 to $622,050 | $207,351 to $311,025 |
| 37% | $518,401 or more | $518,401 or more | $622,051 or more | $311,026 or more |
| Tax rate | Single | Head of household | Married filing jointly or qualifying widow | Married filing separately |
|---|---|---|---|---|
| Source: IRS | ||||
| 10% | $0 to $9,950 | $0 to $14,200 | $0 to $19,900 | $0 to $9,950 |
| 12% | $9,951 to $40,525 | $14,201 to $54,200 | $19,901 to $81,050 | $9,951 to $40,525 |
| 22% | $40,526 to $86,375 | $54,201 to $86,350 | $81,051 to $172,750 | $40,526 to $86,375 |
| 24% | $86,376 to $164,925 | $86,351 to $164,900 | $172,751 to $329,850 | $86,376 to $164,925 |
| 32% | $164,926 to $209,425 | $164,901 to $209,400 | $329,851 to $418,850 | $164,926 to $209,425 |
| 35% | $209,426 to $523,600 | $209,401 to $523,600 | $418,851 to $628,300 | $209,426 to $314,150 |
| 37% | $523,600 or more | $523,600 or more | $628,300 or more | $314,151 or more |
How do federal tax brackets work?
Tax brackets are not as intuitive as they seem because most taxpayers have to look at more than one bracket to know their tax rate.
Let’s use the tax bracket for 2020 and say your filing status is single and you earned $70,000. You would pay 10 percent on the first $9,875 of your earnings ($988); then 12 percent on the chunk of earnings from $9,951 to $40,525 ($3,669); and then 22 percent on the remaining income, up to $86,375 ($10,087).
Your total tax bill would be $14,744. Divide that by your earnings of $70,000 and you get an effective tax rate of 21 percent, which is lower than the 22 percent bracket you’re in.
The brackets above show the tax rates for 2020 and 2021. The brackets are adjusted each year for inflation.
How to get into a lower tax bracket
There are basically two ways to get into a lower tax bracket: tax credits and tax deductions.
Tax credits are a dollar-for-dollar reduction in your income tax bill. If you have a $2,000 tax bill but are eligible for $500 in tax credits, your bill drops to $1,500.
Tax credits can save you more in taxes than deductions. There are tax credits for a variety of things. The federal government gives tax credits for the cost of buying solar panels for your house and to offset the cost of adopting a child. There are education tax credits and tax credits for the cost of child care and dependent care, to name a few. Many states also offer tax credits.
While tax credits reduce your actual tax bill, tax deductions reduce the amount of your income that is taxable. If you have enough deductions to exceed the standard deduction for your filing status, you can itemize those expenses to lower your taxable income. For example, if your medical expenses exceed 10 percent of your adjusted gross income in 2021, you can claim those and lower your taxable income.
Tax code overhaul changed brackets, deductions
The tax code has seven income/tax brackets, with the lowest tax rate being 10 percent. The highest earners pay 37 percent.
Standard deductions nearly doubled under the tax code overhaul that went into effect on Jan. 1, 2018. With much higher standard deductions, fewer people will itemize. The standard deductions for each filing status for 2021 are:
- Single: $12,550
- Head of household: $18,800
- Married filing separately: $12,550
- Married filing jointly: $25,100
- Qualifying widow(er): $25,100
The Tax Cuts and Jobs Act overhauled the tax code, resulting in some changes that save taxpayers money, others that raise their taxes. One big change, especially for people in high-tax states, is the $10,000 cap on the amount of state and local property tax, income tax and sales tax that can be deducted. Those taxes were almost fully deductible before.
The law also hits people with high mortgage debt a little harder. The amount of mortgage debt on which the interest is tax-deductible has been reduced from $1 million to $750,000.
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