2021-2022 Tax Brackets and Federal Income Tax Rates
In this article, you will get to know what are the Federal Income Tax brackets and rates for 2021-22. We will also discuss how they work and affect you. Finally, we will have a look at how you can end up paying a lower federal income tax rate.
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As many as seven federal tax brackets have been designed for the tax year 2021 tax year. These are- 10%, 12%, 22%, 24%, 32%, 35% and 37%. The particular bracket you will be included in depends on your filing status and taxable income. These rates are applicable for taxes due in April 2022.
In the sections below, we will give a tabular representation of the tax brackets for different filing categories.
Federal Income Tax Brackets for 2021
(for taxes due in April 2022 or with an extension in October 2022)
A) If you are a Single Filer
|
Tax Rate |
Taxable Income Bracket |
Total Tax |
|
10% |
Up to $9,950 |
10% of the taxable income |
|
12% |
from $9,951 to $40,525 |
$9950 + 12% of the amount over and above $9,950 |
|
22% |
From $40,526 to $86,375 |
$4,664 + 22% of the amount over and above $40,525 |
|
24% |
From $86,376 to $164,925 |
$14,751 + 24% of the amount beyond $86,375 |
|
32% |
From $164,926 to $209,425 |
$33,603 + 32% of the amount beyond $164,925 |
|
35% |
From $209,426 to $523,600 |
$47,843 + 35% of the amount over and above $209,425 |
|
37% |
$523,601 and beyond |
$157,804.25 + 37% of the amount over and above $523,600 |
B) If you are a Married Couple and are Filing Jointly
|
Tax Rate |
Taxable Income Bbracket |
Total Tax |
|
10% |
Up to $19,900 |
10% of the taxable income |
|
12% |
From $19,901 to $81,050 |
$1,990 +12% of the amount over and above $19,900 |
|
22% |
From $81,051 to $172,750 |
$9,328 + 22% of the amount beyond $81,050 |
|
24% |
From $172,751 to $329,850 |
$29,502 + 24% of the amount beyond $172,750 |
|
32% |
From $329,851 to $418,850 |
$67,206 + 32% of the amount beyond $329,850 |
|
35% |
From $418,851 to $628,300 |
$95,686 + 35% of the amount over and above $418,850 |
|
37% |
$628,301 and beyond |
$168,993.50 + 37% of the amount over and above $628,300 |
C) If you are Married but are Filing Separately
|
Tax Rate |
Taxable Income Bracket |
Total Tax |
|
10% |
up to $9,950 |
10% of the taxable income |
|
12% |
From $9,951 to $40,525 |
$9950 + 12% of the amount over and above $9,950 |
|
22% |
From $40,526 to $86,375 |
$4,664 + 22% of the amount beyond $40,525 |
|
24% |
From $86,376 to $164,925 |
$14,751 + 24% of the amount over and above $86,375 |
|
32% |
From $164,926 to $209,425 |
$33,603 + 32% of the amount beyond $164,925 |
|
35% |
From $209,426 to $314,150 |
$47,843 +35% of the amount beyond $209,425 |
|
37% |
Over $314,151 |
$84,496.75 + 37% of the amount above $314,150 |
D) If you Filing as the Head of a Household
|
Tax Rate |
Taxable Income Bracket |
Tax Owed |
|
10% |
Up to $14,650 |
10% of the taxable income |
|
12% |
From $14,651 to $55,900 |
$1,465 + 12% of the amount above $14,650 |
|
22% |
From $55,901 to $89,050 |
$6,415 + 22% of the amount beyond $55,900 |
|
24% |
From $89,051 to $170,050 |
$13,708 + 24% of the amount over and above $89,050 |
|
32% |
From $170,051 to $215,950 |
$33,148 + 32% of the amount over and above $170,050 |
|
35% |
From $215,951 to $539,900 |
$47,836 + 35% of the amount beyond $215,950 |
|
37% |
Over $539,901 |
$161,218.50 + 37% of the amount beyond $539,900 |
Tax Brackets: How they Work
The United States has adopted a progressive tax system. This means citizens with higher taxable incomes need to pay higher income tax rates. Here are some important points related to the working of the Federal Income Tax brackets-
- Being put into a tax bracket does not mean you need to pay an income tax rate on whatever you make. As per the progressive tax system, taxpayers with higher taxable incomes will pay higher federal income tax rates and vice versa.
- The Federal Government determines the amount of tax you owe. This is done by dividing your taxable income into slabs known as tax brackets. Taxpayers in a particular slab are taxed according to the corresponding tax rate. The important point is that irrespective of the tax bracket you are in, you will not pay the rate on the entire income.
Here are some examples to make it clear for you-
Example 1: Let us assume you are a single filer with a taxable income of $32,000. As per the Federal Income Tax bracket for 2021, you will be put into the 12% tax bracket. But you do not need to pay 12% on your entire taxable income of $32,000. You simply need to pay 10% on the initial $9,950. Beyond this income, you will need to pay 12%.
Example 2: Let us assume you had a taxable income of $50,000. As per the Federal Income Tax bracket for 2021, you will pay 10% on that first $9,950. In addition, you will need to pay 12% tax on the income between $9,951 and $40,525. Then you will pay 22% on the rest of your income. This is because some of your taxable income falls into the tax bracket of 22% as well. Considering all these, your total tax would be $6,800 ( approx.), which is almost 14% of your total taxable income. This shows that even if you are in the 22% tax bracket, effectively you are paying a tax of 14%. This tax of 14% is therefore called the ‘effective tax rate’.
What is a Marginal Tax Rate?
The marginal tax rate for you is the tax rate you need to pay on an additional dollar of your taxable income. This is usually equal to your highest tax bracket.
An example will make it clearer for you. Let us assume you are a single filer having a taxable income of $30,000. as per the Federal income tax rates, you would be put into the 12% tax bracket. Now, if your taxable income increases by $1, you would pay 12% tax on that additional dollar as well.
Now, if your taxable income was $41,000, most of it will fall within the original 12% bracket only. But, the last few hundred dollars would now fall into the 22% tax bracket. In this case, your marginal tax rate will be 22%.
How can you get into a Lower Income Tax Bracket and Pay a Lower Income Tax Rate?
Here, we will discuss 2 common ways to reduce your tax – credits and deductions.
- If you avail of tax credits, it can reduce your tax burden on a dollar-for-dollar basis. They will not affect the tax bracket you are in, anyway.
- On the other hand, if you take tax deductions, the amount of income tax you can reduce depends on the applicable tax brackets. In general, deductions decrease the taxable income by the percentage of your highest income tax bracket. For example, if you are put into the 22% bracket, a deduction of $1,000 can save you $220.
Therefore, we would suggest you avail all the tax deductions you are eligible to claim. These can decrease your taxable income and can put you into a lower income tax bracket. Thus, you will end up paying a lower income tax rate.
Final Words
So you see, The U.S. federal tax rates will continue to remain the same until 2025 because of the implementation of the Tax Cuts and Jobs Act of 2017. However the income thresholds that inform the tax brackets are basically adjusted every year inorder to reflect the rate of inflation. For more information on the same, be sure to visit us at www.accountingadvice.co and you will be surprised with the latest details offered.
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Frequently Asked Questions (FAQs)
How Much Foreign Income can be considered Tax free in the USA?
The maximum foreign earned income exclusion and the amount is adjusted annually for the case of inflation. In the case of tax year 2022, the maximum foreign earned income exclusion is much less as compared to that of the foreign income earned or $112,000 per qualifying person. As for the tax year 2023, the maximum exclusion is $120,000 for every individual.
What is higher? The Tax in the USA or India?
When it comes to the taxes, the maximum personal income tax rate is 54 per cent in Canada, it is 51.6 percent in the US, and 45 per cent in Australia. However it is 30 per cent in India. In fact, 15 out of 20 nations in the intergovernmental forum G20 have a maximum personal income tax rate that is higher as compared to India.
What is the difference between the US Tax and the Indian Tax?
In the case of the American tax system, the above categories are known as ‘tax brackets’ and unlike the Indian tax system, these are not conditioned by age. On the other hand, they are mainly split according to marital status. The tax brackets for the tax system in the US are as follows: Single – For unmarried or divorced individuals.
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