As the close of the year draws near, taxpayers grow concerned about limiting their tax liability in 2021. By understanding their incremental federal income tax rates, individuals can appreciate the benefit received from a potential deduction.
2021 Income Tax Rate Schedules
Income tax rate tables, or brackets, are published each year by the federal government through the Internal Revenue Service or IRS. These tables outline the tax owed and incremental tax rates. These schedules can also be used to estimate a potential income tax liability in 2021. However, more accurate estimates can be achieved by completing Form 1040.
Additional Resources |
Information on the 2020 schedules can be found in our article: Tax Brackets, while our Tax Rate Calculator can be used to estimate federal income taxes owed for the years 2017 through 2021.
Reading a Tax Rate Schedule
The American Taxpayer Relief Act of 2012 added a seventh bracket (39.6%) in 2013. The remaining six rates were unchanged. Starting in 2018, there remains seven tax brackets, with the new values of 10%, 12%, 22%, 24%, 32%, 35% and 37%. Reading a tax rate schedule is a fairly simple process.
The first step is to calculate an individual's total federal taxable income. Again, IRS Form 1040 can help individuals determine that value more accurately. Once the taxable income is known, the next step involves selecting the proper rate table.
There are four schedules, depending on the individual's filing status such as Single or Married, Filing Jointly. The instructions for Form 1040 explain the process for selecting the correct status.
2021 Unmarried Individuals: Rate Schedule X
Taxable income is over - | But not over - | The tax is: | Of the amount over - |
$0 | $9,950 | $0 + 10% | $0 |
9,950 | 40,525 | 995.00 + 12% | 9,950 |
40,525 | 86,375 | 4,664.00 + 22% | 40,525 |
86,375 | 164,925 | 14,751.00 + 24% | 86,375 |
164,925 | 209,425 | 33,603.00 + 32% | 164,925 |
209,425 | 523,600 | 47,843.00 + 35% | 209,425 |
523,600 | - | 157,804.00 + 37% | 523,600 |
2021 Married Individuals Filing Joint Returns or Surviving Spouses: Rate Schedule Y-1
Taxable income is over - | But not over - | The tax is: | Of the amount over - |
$0 | $19,900 | $0 + 10% | $0 |
19,900 | 81,050 | 1,990.00 + 12% | 19,900 |
81,050 | 172,750 | 9,328.00 + 22% | 81,050 |
172,750 | 329,850 | 29,502.00 + 24% | 172,750 |
329,850 | 418,850 | 67,206.00 + 32% | 329,850 |
418,850 | 628,300 | 95,686.00 + 35% | 418,850 |
628,300 | - | 168,993.50+ 37% | 628,300 |
2021 Married Filing Separately: Rate Schedule Y-2
Taxable income is over - | But not over - | The tax is: | Of the amount over - |
$0 | $9,950 | $0 + 10% | $0 |
9,950 | 40,525 | 995.00 + 12% | 9,950 |
40,525 | 86,375 | 4,664.00 + 22% | 40,525 |
86,375 | 164,925 | 14,751.00 + 24% | 86,375 |
164,925 | 209,425 | 33,603.00 + 32% | 164,925 |
209,425 | 314,150 | 47,843.00 + 35% | 209,425 |
314,150 | - | 84,496.75 + 37% | 314,150 |
2021 Head of Household: Rate Schedule Z
Taxable income is over - | But not over - | The tax is: | Of the amount over - |
$0 | $14,200 | $0 + 10% | $0 |
14,200 | 54,200 | 1,420.00 + 12% | 14,200 |
54,200 | 86,350 | 6,220.00 + 22% | 54,200 |
86,350 | 164,900 | 13,293.00 + 24% | 86,350 |
164,900 | 209,400 | 32,145.00 + 32% | 164,900 |
209,400 | 523,600 | 46,385.00 + 35% | 209,400 |
523,600 | - | 156,355.00 + 37% | 523,600 |
Tax Rate Example Calculation
We're going to run through a quick example to illustrate how the above tables are used to determine a taxpayer's incremental tax bracket in 2021. In this example, let's say that Bill's filing status is Married Filing Jointly. That means he will be using Schedule Y-1 above. If Bill's federally taxable income in 2021 is $100,000, then the tax owed is calculated as follows:
Bill is going to use the third row of the Y-1 schedule because his income falls between $81,050 and $172,750. That puts Bill in the 22% tax bracket. Calculating the tax liability from that table:
$9,328.00 + 22% x ($100,000 - $81,050)
$9,328.00 + 0.22 x $18,950
$9,328.00 + $4,169.000 = $13,497.00
Marginal Tax Rates
Anyone that understands how to use these tables also understands why they are referred to as marginal tax rates. Within each rate schedule it's possible to find the taxpayer's incremental tax rate, or marginal rate of tax. This is the rate at which each incremental dollar earned is taxed. In the above example, the marginal tax rate was 22%. One of the more common misconceptions is that if someone earns more money, then all of the income is taxed at the higher rate. The above tables demonstrate this is simply not true. Individuals are taxed at an incremental rate on marginal income. That means an individual might be taking home less pay for each additional hour worked, but they are certainly bringing home more money.
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