Do You Know Your Tax Bracket?

by | Feb 1, 2021 | Financial Planning

It’s tax time yet again! Do you know what your tax bracket is for your 2020 taxes? Things were a little different last year for a lot of people. The pandemic hit folks in a number of ways, and the usual income you were expecting may have looked different than 2019. It’s important to know your tax bracket so you can potentially recalibrate your expectations for tax season.

You’ll be reaching out to your CPA or financial advisor to begin the tax filing process shortly (if you haven’t already). While you’re collecting all of the necessary filing information, take a look at how your income potentially changed over the last year. Whether it was COVID-19 related or not, it’s still a good idea to take a look before handing things over to your tax preparer.

The seven 2020 tax rates themselves didn’t change (they are the same as those in effect for the 2019 calendar year), however, the tax bracket ranges were modified based on inflation. Because of this, it’s possible you could be in a different tax bracket for 2020 than the last time you reported your taxes, even if your income has not changed.

Reminder: Tax Brackets are Marginal

The IRS divides income into different tax rates. Each subsequent portion of your income will have an increased tax rate. For example, if you are a single filer who made $40,125 in 2020, your first $9,875 will be taxed at 10%. The next portion of your income will be taxed at an increased rate; from $9,875 to $40,125, your tax rate will be 12%. 

As your income increases, you’ll fall into higher tax brackets and will have a higher tax rate for each portion of your income. It’s important to note that if you fall into the 35% tax bracket, not EVERY dollar you make will be taxed at 35%.

Why Would My Tax Bracket Be Different? 

The IRS is always adjusting tax rates and brackets for inflation. As inflation eats away at your purchasing power over the years, the IRS accounts for that and adjusts the brackets accordingly. This helps to avoid bracket creep.

What is bracket creep? Bracket creep occurs when inflation pushes your income into a higher tax bracket. In this scenario, an individual may not actually have increased purchasing power or greater disposable income, even with an increase in wages and salaries.

With the arrival of COVID-19 in early 2020, many Americans were hit financially throughout the year. Jobs were lost and businesses were closed temporarily (and many permanently). Naturally, incomes around the country were also impacted. This tax season you may fall into a lower tax bracket than you’re used to. That’s why we wanted to share the tax brackets for 2020, so you can start to gauge where you may fall.

2020 Tax Brackets 

Without further ado, here are the 2020 tax brackets according to your filing status and income from the IRS.

10% Tax Rate

  • Single Individuals: from $0 to $9,875
  • Married Individuals Filing Jointly: from $0 to $19,750
  • Heads of Households: from $0 to $14,100
  • Married Individuals Filing Separately: from $0 to $9,875

12% Tax Rate

  • Single Individuals: from $9,876 to $40,125 
  • Married Individuals Filing Jointly: from $19,751 to $80,250    
  • Heads of Households: from $14,101 to $53,700
  • Married Individuals Filing Separately: from $9,876 to $40,125

22% Tax Rate

  • Single Individuals: from $40,126 to $85,525    
  • Married Individuals Filing Jointly: from $80,251 to $171,050        
  • Heads of Households: from $53,701 to $85,500
  • Married Individuals Filing Separately: from $40,126 to $85,525

24% Tax Rate

  • Single Individuals: from $85,526 to $163,300        
  • Married Individuals Filing Jointly: from $171,051 to $326,600    
  • Heads of Households: from $85,501 to $163,300
  • Married Individuals Filing Separately: from $85,526 to $163,300

32% Tax Rate

  • Single Individuals: from $163,301 to $207,350    
  • Married Individuals Filing Jointly: from $326,601 to $414,700        
  • Heads of Households $163,301 to to $207,350
  • Married Individuals Filing Separately: from $163,301 to $207,350

35% Tax Rate

  • Single Individuals: $207,351 to $518,400
  • Married Individuals Filing Jointly: from $414,701 to $622,050
  • Heads of Households: from $207,351 to $518,400
  • Married Individuals Filing Separately: from $207,351 to $311,025

37% Tax Rate

  • Single Individuals: over $518,400    
  • Married Individuals Filing Jointly: over $622,050    
  • Heads of Households: over $518,400
  • Married Individuals Filing Separately: over $311,025

In addition to the tax inflation adjustments, the IRS also altered standard deductions. Keep in mind, these tax brackets are for the federal level of income taxes. Each state may have different brackets and rates as well. Talk to your tax preparer to find out those specific rates and brackets.

If you have more questions about your taxes in general, we would be happy to speak with you and potentially recommend a tax preparer that would fit your situation. Click here to schedule an initial call with one of our team members!

Join our Newsletter

Mullooly-Main-Logo

Future-Proof Your Finances

Download the 25-Year Success Strategy

 
Enter your email & get this free PDF download to help you prepare for the next 25 years.  We will send periodic updates as well. Unsubscribe at any time.

You have Successfully Subscribed!

Share This