How to Figure Out Your Tax Bracket for 2020

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Knowing which income tax brackets you land in can help you plan ahead and potentially payer less in taxes. Here’s how tax brackets work and which federal tax bracket applies to you.

How Tax Filings Work

Taxes are due April 15th every year, but you’re allowed to file as early as late January. Your income documents, such as W-2s and 1099s, should be mailed by January 31, but some companies take longer.

You’ll want to wait and make sure you’ve received all the necessary tax documents before you file. Otherwise, you may have to submit a correction, which can be a headache.

You don’t have to file taxes if you make less than $12,200 annually, but in that case, you may end up getting a refund if you do file.

Tax Brackets for 2020

There are four categories for filing your taxes: single, married filing separately, married filing jointly, and head of household.

Each of these four categories has slightly different 2020 income tax brackets, so make sure you’re reading the right column to figure out which income bracket applies to you.

Federal income tax brackets (for income earned in 2020 and taxes due in 2021):

Tax RateSingleMarried Filing JointlyMarried Filing SeparateHead of Household
10%$0 to $9,875$0 to $19,750$0 to $9,875$0 to $14,100
12%$9,876 to $40,125$19,751 to $80,250$9,876 to $40,125$14,101 to $53,700
22%$40,126 to $85,525$80,251 to $171,050$40,126 to $85,525$53,701 to $85,500
24%$85,526 to $163,300$171,051 to $326,600$85,526 to $163,300$85,501 to $163,300
32%$163,301 to $207,350$326,601 to $414,700$163,301 to $207,350$163,301 to $207,350
35%$207,351 to $518,400$414,701 to $622,050$207,351 to $311,025$207,351 to $518,400
37%$518,401 or more$622,051 or more$311,026 or more$518,401 or more

How Income Tax Brackets Work

The U.S. has a progressive tax rate system, which means that people who earn more will pay more in taxes, relative to their income. One common misconception is that people with high incomes pay an overall higher tax rate.

Those who are in the highest brackets don’t pay that tax rate on all of their income, but only the income that falls into that bracket. This means that if you’re in the 24% bracket, only the income you make above the 22% bracket of $84,200 gets taxed at 24%.

Suppose you’re married and file jointly. Your combined annual income is $106,000. You’d fall into the 22% tax bracket. With the progressive tax rate, the 22% is not applied to your entire income.

You would pay 10% on the first $19,750 you make, then 12% on the income between $19,751 and $80,250. Any income over $80,250 would be taxed at your tax rate of 22%. 

If you make $1,000,000 a year, you’d fall into the 37% tax bracket, the highest. But that doesn’t mean you’d pay 37% on all your income, only the income that falls into that bracket.

This is why people are still incentivized to make more money. Even if they jump into the next tax bracket, only a small portion of their income will be taxed at that rate.

Your tax bracket is based on your adjusted gross income (AGI), not your base salary.

Related: Do I Have to Pay Taxes on Bank Account Interest?

Adjusted Gross Income

Your adjusted gross income (AGI) is one of the most important numbers you need to know. It’s your gross income minus some of your tax deductions and is a measure of how much of your income is actually taxable.

Calculating your AGI is fairly simple. The first step is to add up all of your various income sources including salary, dividends, capital gains, alimony, interest received, rental income, and retirement distributions. Any source of income that you bring in counts towards your gross income.

Then, add up any eligible deductions and any pre-tax retirement contributions you’ve made. These include traditional 401(k) and IRA contributions, 529 contributions, and any tax credits. You’ll subtract those from your total income to get your AGI.

Once you have your AGI, you can determine your federal income tax bracket.

Author
Richmond Howard

Hey, I’m Richmond!I work full-time as a youth pastor and am currently pursuing a Masters in Theology at Dallas Theological Seminary. My wife and I are doing everything we can to plan for our financial future and I’m passionate about helping others do the same! I specialize in budgeting, investing for beginners, and helping married couples get on the same team with their finances.I currently live in Houston, TX with my wife and pup! In my spare time, I love drinking good beer, powerlifting, and nerding out about all things money on my blog, PFGeeks.com.

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