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Income Tax Brackets—How is Your Income Tax Calculated?

The United States operates under a progressive tax system that imposes a higher tax rate on taxpayers who have higher incomes. Generally, you’ll pay more tax as you move up the pay scale, which is accomplished by creating income tax brackets that group taxpayers based on income ranges.

Seven tax brackets exist for the 2021 tax year or taxes due in April 2022 or October 2022, with an extension. These are 10pc, 12pc, 22pc, 24pc, 32pc, 35pc and 37pc. The bracket you fall under depends on several factors such as your taxable income, credits, deductions, and your filing status: single taxpayer, married couples filing jointly, or married filing separately. 

Upcoming Tax Brackets & Tax Rates for 2021-2022

The IRS tends to adjust tax rates, allowances, and thresholds every year based on inflation.

Here’s a look at the brackets and tax rates for taxes due in April 2022.

Income Tax Rate

2021

Single Filers

Married Filing Jointly and Qualifying Widow(er)s

Head of Household

10%

$0 – $9,950

$0 – $19,900

$0 to $14,200

12%

$9,951 – $40,525

$19,901 – $81,05

$14,201 – $54,200

22%

$40,526 – $86,375

$81,051 – $172,750

$54,201 – $86,350

24%

$86,376 – $164,925

$172,751 – $329,850

$86,351 – $164,900

32%

$164,926 – $209,425

$329,851 – $418,850

$164,901 – $209,400

35%

$209,426 – $523,600

$418,851 – $628,300

$209,401 – $523,600

37%

$523,601 and above

$628,300 and above

$523,601 and above

For married couples filing separately, the tax brackets are similar to single filers, with deviations coming in for incomes above $209,425. The tax rates for married couples filing separately become:

  • 35%, for incomes between $209,425 and $314,150
  • 37% for incomes over $314,150

In November 2021, the IRS provides tax inflation adjustments for tax year 2022. As such, here are the tax brackets for taxes due April 2023 or October 2023, with an extension.

Income Tax Rate 2022

Single Filers

Joint Filers

Heads of Households

10%

$0 to $10,275

$0 to $20,550

$0 to $14,650

12%

$10,275 to $41,775

$20,550 to $83,550

$14,650 to $55,900

22%

$41,775 to $89,075

$83,550 to $178,150

$55,900 to $89,050

24%

$89,075 to $170,050

$178,150 to $340,100

$89,050 to $170,050

32%

$170,050 to $215,950

$340,100 to $431,900

$170,050 to $215,950

35%

$215,950 to $539,900

$431,900 to $647,850

$215,950 to $539,900

37%

$539,900 and above

$647,850 and above

$539,900 and above

How Federal Income Tax Brackets Work

Almost everyone agrees that the current tax system is too complicated. Tax brackets are not as intuitive as they seem at first glance because odds are you’ll have to look at more than one tax bracket to figure out your effective tax rate. That’s why most people opt to work with a CPA firm for tax planning and business advisory services. 

The tax bracket your top dollar falls into is your marginal tax rate. However, not all your income is levied at this rate across the board. Let’s say you’re a single taxpayer with a taxable income of $80,000 in tax year 2021. Your marginal tax rate is 22%, but here’s how your taxes will be broken down.

  • The first $10,275 will be taxed at 10% resulting in a tax of $1,027.50.
  • The next $31,500 ($41,775-$10,275) will be taxed at 12% resulting in a tax of $3,780.
  • The last $38,225 ($80,000-41,775) will be taxed at your marginal tax rate of 22% resulting in a tax of $8,409.50.

Therefore, your total tax returns will amount to $13,217, or the sum of $1,027.50 +$3,780 + $8,409.50. As you can see, the last dollar you earn is taxed more than the first dollar you earn – this is technically the principle of a progressive tax system.

How To Get Into a Lower Tax Bracket

No one wants to pay higher taxes than they need to. Fortunately, you can lower your tax bill through tax credits and tax deductions.

Several tax credits exist to help low-income and middle-income households reduce the amount of taxes they owe. Some examples include:

  • Earned income tax credits to offset the burden of Social Security taxes
  • Child tax credit to defray the costs for childcare for dependents under age 13
  • Lifetime learning credit to offset the costs of post-secondary education

You can also lower your income using tax deductions. For instance, you can deduct property taxes and the mortgage interest paid on a home loan. Additionally, there’s a defined dollar amount that lowers your taxable income.

Let’s look at the 2021 and 2022 tax years, where the standard deduction is as follows:

Filing status

2021 tax year

2022 tax year

Single

$12,550

$12,950

Married, filing jointly

$25,100

$25,900

Married, filing separately

$12,550

$12,950

Head of household

$18,800

$19,400

The IRS allows you to take the standard deduction on a no-questions-asked basis. But taking the standard deduction means you cannot deduct home mortgage interest, medical expenses, plus charitable donations from your tax bill. If your standard deduction is less than your other deductions combined, it’s best to itemize your deductions and save money.

The Bottom Line for Income Tax Brackets

FMA CPA is a CPA firm in Clearwater, specializing in helping individuals and small business owners with all matters of tax preparation and tax planning. As business advisors, we can help you get your house in order when filing taxes to ensure you don’t have to pay Uncle Sam more than what’s necessary.