Understanding Tax Brackets: What Are They?
If you’ve ever wondered why some people owe more or less on their annual federal income taxes than you, it’s likely that you considered their total yearly income as the reason. This is true, but it’s only one part of the bigger picture. The reason why somebody pays a different rate is because they’re in a different tax bracket than you. Whether it’s 2020 or 2021, income tax brackets look at how much money somebody (or a family) earned for a given year and report it to the IRS.
How Are Tax Brackets Determined?
Each year, tax brackets are announced by the IRS for everybody in the United States. These figures are set at specific marginal tax rates which follow a certain taxable income range. Then, these tax brackets will follow one of the following filing statuses:
- Single
- Head of household
- Married (joint file)
- Married (separate file)
Ultimately, the amount of money you or your family report in taxable federal income each year is what determines your tax bracket. For households with larger incomes, tax brackets will, in turn, be equally large; the opposite can be said for homes that earn significantly less money.
What Are the 2021 Income Tax Brackets?
2021 income tax brackets are set at marginal tax rates that apply to individuals or families filing under one of the four statuses mentioned above. These seven tax brackets cover all levels of taxable income, from less than $10,000 to more than $600,000. This, unfortunately, can cause trouble for those who make very little money in 2021. Income tax brackets can also take a large chunk of money from people who make a tremendous amount yearly. Here are the various 2021 tax brackets per filing status:
Filing as Single Tax Brackets (2021)
These marginal 2021 tax rates apply if you’re simply filing as a single person with no dependents or spouse.
- 10% tax rate — $0 to $9,950 in taxable income
- 12% tax rate — $9,950 to $40,525 in taxable income
- 22% tax rate — $40,525 to $86,375 in taxable income
- 24% tax rate — $86,375 to $164,925 in taxable income
- 32% tax rate — $164,925 to $209,425 in taxable income
- 35% tax rate — $209,425 to $523,600 in taxable income
- 37% tax rate — More than $523,600 in taxable income
Filing as Head of Household Tax Brackets (2021)
If you’re filing as the head of household for your 2021 income tax brackets, this means that you are parents or legal guardians of one or more dependents, but not married.
- 10% tax rate — $0 to $14,200 in taxable income
- 12% tax rate — $14,200 to $54,200 in taxable income
- 22% tax rate — $54,200 to $86,350 in taxable income
- 24% tax rate — $86,350 to $164,900 in taxable income
- 32% tax rate — $164,900 to $209,400 in taxable income
- 35% tax rate — $209,400 to $523,600 in taxable income
- 37% tax rate — More than $523,600 in taxable income
Filing Jointly as Married Tax Brackets (2021)
If you’re married and decide to file jointly for 2021 income tax brackets, you and your spouse will have a wider taxable income range.
- 10% tax rate — $0 to $19,900 in taxable income
- 12% tax rate — $19,900 to $81,050 in taxable income
- 22% tax rate — $81,050 to $172,750 in taxable income
- 24% tax rate — $172,750 to $329,850 in taxable income
- 32% tax rate — $329,850 to $418,850 in taxable income
- 35% tax rate — $418,850 to $628,300 in taxable income
- 37% tax rate — More than $628,300 in taxable income
Filing Separately as Married Tax Brackets (2021)
Unlike filing as single for 2021 tax brackets, filing separately as a married couple will reduce your income range if you make over $314,150.
- 10% tax rate — $0 to $9,950 in taxable income
- 12% tax rate — $9,950 to $40,525 in taxable income
- 22% tax rate — $40,525 to $86,375 in taxable income
- 24% tax rate — $86,375 to $164,925 in taxable income
- 32% tax rate — $164,925 to $209,425 in taxable income
- 35% tax rate — $209,425 to $314,150 in taxable income
- 37% tax rate — More than $314,150 in taxable income
How Do Tax Brackets in 2021 Affect You?
Texas residents do not have to pay a state tax, but they must pay federal income and property taxes for residential or commercial buildings at the end of the year. One of the tax brackets shown will be applied to your specific financial situation, so it’s very important that you begin understanding tax brackets to have an idea of how much you’ll owe. Fortunately, your tax bracket will only change if you report more income than you planned (i.e., starting a new job at the beginning of the year). That means that regardless of which tax bracket you fall under, you will only be affected by one set marginal tax rate to abide by once you file.
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