How Tax Brackets Work
Federal income tax rates are determined by your filing status and your taxable income for the year - your adjusted gross income minus either your standard deduction or allowed itemized deductions. The tax rate increases progressively the more you earn and is divided into income tax brackets. There are seven tax rates ranging from 10% to 37% as of 2020.
It's important to note you only have to pay the tax rate on the amount your taxable income falls into for each tax bracket. This is what's known as 'progressive taxation' and can confuse a lot of people but an example can help illustrate how this works.
Below you will find tables for the two most current year tax brackets and rates, as well as a example section on how to use the tax bracket table (example uses a US median household taxable income and a common filing status). The same principle can used for any filing status and tax year. Tax rates and brackets are subject to change annually but the way to determine how much you pay and how to use the tax brackets always remains the same.
2019 Tax Brackets & Rates
Use this table to calculate the tax rate and tax brackets for filing your 2019 federal income taxes. Remember to start with your taxable income, which is your adjusted gross income minus your standard deduction or itemized deductions. Rates are subject to change every year and 2019 rates are different from 2020 rates - Official IRS 2019 Tax Brackets and Rates. Note the brackets are different depending on your filing status.
2019 Tax Rate | Single | Head of Household | Married Filing Jointly, Qualified Widow | Married Filing Separately |
|---|
| 10% | $0 to $9700 | $0 to $13,850 | $0 to $19,400 | $0 to $9700 |
12% | $9,701 to $39,475 | $13,851 to $52,850 | $19,401 to $78,950 | $9,701 to $39,475 |
22% | $39,476 to $84,200 | $52,851 to $84,200 | $78,951 to $168,400 | $39,476 to $84,200 |
24% | $84,201 to $160,725 | $84,201 to $160,700 | $168,401 to $321,450 | $84,201 to $160,725 |
32% | $160,726 to $204,100 | $160,701 to $204,100 | $321,451 to $408,200 | $160,726 to $204,100 |
35% | $204,101 to $510,300 | $204,101 to $510,300 | $408,201 to $612,350 | $204,100 to $306,175 |
37% | $510,301 or more | $510,301 or more | $612,351 or more | $306,176 or more |
2020 Tax Brackets & Rates
Use this table to calculate the tax rate and tax brackets for filing your 2020 federal income taxes. Remember to start with your taxable income, which is your adjusted gross income minus your standard deduction or itemized deductions. Rates are subject to change every year and 2020 rates are different from 2019 rates - Official IRS 2020 Tax Brackets and Rates. Note the brackets are different depending on your filing status.
2020 Tax Rate | Single | Head of Household | Married Filing Jointly, Qualified Widow | Married Filing Separately |
|---|
10% | $0 to $9875 | $0 to $14,100 | $0 to $19,750 | $0 to $9875 |
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 |
How to Use the Tax Tables
Let's say your filing status is Head of Household and your taxable income is the median household income (according to a recent report) of $62,116 and you used the 2020 tax brackets and rates.
Here is how your income would be taxed:
The first $14,100 would be taxed at 10%.
Taxable income from $14,101 to $53,700 would be taxed at 12%.
And the taxable income from $53,701 to $62,116 would be taxed at 22%.
In this case you would use a total of 3 different rates because your income fell into 3 different tax brackets. And then you would add them all up to find your total income tax owed.
A common misunderstanding is to think all of your taxable income in this scenario would be taxed at 22%. But in reality it would only be the income that falls into that tax bracket. In this example the 22% would only apply to $8,415 ($62,116 - $53,071). And the same would apply to the 12% - only $39,599 would be taxed at 12% ($53,700 - $14,101).
Said another way:
$14,100 taxed at 10% = $1410
$39,599 taxed at 12% = $4751.88
$8415 taxed at 22% = $1851.30
Grand total = $8013.18. That's $1410 + $4751.88 + $1851.30.
Making just enough to fall into a higher tax bracket really isn't that big of a deal either. This is another common misconception. It only means the amount you made just over a bracket will be taxed higher. So if you made barely over one of the brackets it won't equate to that much more in your grand total of taxes owed.
And lastly, as stated above a few times but remains important, your taxable income isn't what you made for the year. Your taxable income is determined by finding your adjusted gross income and then subtracting either the standard deduction or itemized deductions (whichever you go with, whichever is more).
To determine your AGI (adjusted gross income) refer to the official IRS definition.