The Internal Revenue Service has released 2021 tax brackets, including inflation adjustments for the next year.
The IRS also boosted the standard deduction for a single taxpayer to $12,550, an increase of $150 from this year.
Married couples could see a $300 increase with a joint deduction of $25,100.
There are seven marginal tax brackets. The IRS will tax different portions of your income at different rates.
Here’s how the seven tax brackets will break down, according to the IRS announcement:
10% for single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly)
12% for incomes over $9,950 ($19,900 for married couples filing jointly).
22% for incomes over $40,525 ($81,050 for married couples filing jointly);
24% for incomes over $86,375 ($172,750 for married couples filing jointly);
32% for incomes over $164,925 ($329,850 for married couples filing jointly);
35%, for incomes over $209,425 ($418,850 for married couples filing jointly);
37% for individual single taxpayers with incomes over $523,600 ($628,300 for married couples filing jointly)
The nonpartisan nonprofit Center on Budget and Policy Priorities notes that marginal tax rates are often misunderstood:
Taxpayers’ average tax rates are lower — usually much lower — than their marginal rates. People who confuse the two can end up thinking that taxes are much higher than they actually are.
After deductions and adjustments, here’s how the marginal tax rate would work for an individual taxpayer with $75,000 of taxable income:
10% tax on first portion of income under $9,950 = $995
12% tax on portion of income from $9,950 to $40,525 = $3,669
22% tax on portion of income between $40,525 and $75,000 = $7,585
The total income tax for $75,000 of taxable income would be $12,249.
Note: Remember, the above is based on Taxable Income... which is the amount of income remaining after subtracting the appropriate Standard Deduction.