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If there’s one topic we doubt you’re planning to bring up at your next dinner party, it’d be federal income tax. And we get it—no one (except tax professionals . . . maybe) likes to think about taxes. But it’s important to know how much you’ll need to shell out during the year to keep Uncle Sam off your back. And how do you figure that out? Tax rates.
Tax rates rise and fall depending on the year, and if you’re like most people, you probably don’t follow them too closely—unless you need help falling asleep at night. (And we can think of more enjoyable ways to get to dream land.)
So what is a tax rate? It’s the percentage you’re taxed at, based on your taxable income. Sound complicated? It’s actually simpler than you may think.
Let’s take a closer look.
How Do Federal Income Tax Rates Work?
Here in the U.S. we have what’s called a progressive tax system. Basically, that means the more money you make, the more you’re going to be taxed on that income.
So how do you know what rate you’ll be taxed at? Your taxable income gets divided into income ranges called “brackets,” with each range getting taxed at a certain rate. Remember, your taxable income is your income after you’ve subtracted any deductions and tax credits (with deductions lowering your taxable income and credits lowering the amount you owe).
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The good news is that whatever bracket you find yourself in, you don’t have to pay that percentage on your entire income—just the portion that lands in that range. The rest of your income is taxed at the lower rates for each bracket that your income fills up.
We’ll break it down more in a minute, but let’s say you’re married filing jointly with $90,000 in taxable income. Roughly the first $20,000 of that income will be taxed in the first bracket. Then the next $60,000 or so will be taxed in the next bracket. Then the next portion will be taxed in the next bracket. You get the idea.
Before we show you how to figure out what taxes you’ll have to pay, let’s walk through what the current federal income tax rates are.
2020 Federal Income Tax Rates
The federal income tax rates are even lower for income earners in 2020 than they were for 2019—ranging from 10% to 37%.1 These are the rates you’ll use to figure out how much income tax you’ll owe Uncle Sam in 2020.
Taxable Income (Single Filer)
Taxable Income (Married,Filing Jointly)
Taxable Income (Married, Filing Separately)
Taxable Income (Head of Household)
$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 to Calculate Your Federal Income Tax
If you looked at that table for longer than five seconds, did it make your eyeballs pop out of your head like a cartoon character? Not to worry. We’ll walk you through it, and before you know it, you’ll be feeling like an expert—and a lot more confident.
The first thing to remember when you’re looking at this table is that these rates are only applied to your taxable income. So take out tax credits and deductions before you start doing the math.
Here’s an example. Let’s say you’re a single filer who made $60,000 this year and are taking the standard deduction of $12,400. You’d first subtract the $12,400 from $60,000, leaving you $47,600 of taxable income. That means only $47,600 is going to be taxed. Yeah, baby!
Now if you give that tax chart another look, you’ll notice $47,600 falls right into the 22% bracket. But don’t worry! The whole amount isn’t going to be taxed at 22%—just a portion of it. Here’s how it breaks down:
Starting with the first bracket, the first $9,875 of your income is taxed at 10%. That comes out to $987.50 in taxes.
The second portion of your taxable income, from $9,876 to $40,125, is taxed at 12%. To get the amount of your income that falls into this range, the math is simple. Just subtract the bottom end of the range from the top. So, $30,249 of your income (that’s $40,125 minus $9,876) will be taxed at 12%—which is $3,629.88.
The third, and final, tax bracket you’d have to consider in this example is the 22% rate for taxable income between $40,126 and $85,525. Only the final $7,474 of your income falls into this bracket ($47,600 minus $40,126), so that’s the amount that’ll be taxed at 22%—which comes out to $1,644.28 in taxes.
When we add up the taxes from each of these three tax brackets, the total amount you would pay on $47,600 of taxable income is $6,261.66:
$987.50 (from the 10% bracket)
$3,629.88 (from the 12% bracket)
$1,644.28 (from the 22% bracket)
$6,261.66 total in taxes
And remember that these are the federal income tax rates. Some states might have either a flat income tax, different tax brackets, or no income tax at all.
Get a Tax Pro
If the idea of doing all this tax math has you running for the hills, we get it. It can be a lot to figure out. The great news is that you don’t have to crunch the numbers all by yourself. A tax Endorsed Local Provider (ELP) can walk you through the process from beginning to end so you can conquer your taxes with confidence! And that’s definitely something you’ll feel like sharing at your next dinner party.
Find a tax pro today!