The U.S. has a progressive tax system, meaning as you move up the pay scale, you also move up the tax scale. There are currently seven tax brackets for 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.
2020 federal income tax brackets
2020 tax brackets (for taxes due April 15, 2021)
Marginal Rates: For tax year 2020, the top tax rate remains 37% for individual single taxpayers with incomes greater than $518,400 ($622,050 for married couples filing jointly). The other rates are:
35%, for incomes over $207,350 ($414,700 for married couples filing jointly);
32% for incomes over $163,300 ($326,600 for married couples filing jointly);
24% for incomes over $85,525 ($171,050 for married couples filing jointly);
22% for incomes over $40,125 ($80,250 for married couples filing jointly);
12% for incomes over $9,875 ($19,750 for married couples filing jointly).
How to get into a lower tax bracket
There are 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 $3,000 tax bill but are eligible for $500 in tax credits, your bill drops to $2,500.
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 exceeded 7.5 percent of your adjusted gross income in 2019, you can claim those and lower your taxable income.
Quick note: This is not to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary by location, consult a lawyer or HR expert for specific guidance.
Komentáře