What Are the Income Tax Brackets for 2021 vs. 2020?

This is a unique time of the year for taxpayers. On the one hand, you’re getting ready to file your 2020 tax return (which is due April 15, 2021). But, on the other hand, you’re also looking ahead (or should be) and starting to think about how to handle your 2021 finances in a tax-efficient way. In either case, you need to be familiar with the federal income tax rates and tax brackets that apply (or will apply) to you.

The tax rates themselves didn’t change from 2020 to 2021. There are seven tax rates in effect for both the 2021 and 2020 tax years: 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, as they are every year, the 2021 tax brackets were adjusted to account for inflation. That means you could wind up in a different tax bracket when you file your 2021 return than the bracket you’re in for 2020 – which also means you could be subject to a different tax rate on some of your 2021 income, too.

The tax bracket ranges also differ depending on your filing status. For example, the 22% tax bracket for the 2020 tax year goes from $40,126 to $85,525 for single taxpayers, but it starts at $53,701 and ends at $85,500 for head-of-household filers. (For 2021, the 22% tax bracket for singles goes from $40,526 to $86,375, while the same rate applies to head-of-household filers with taxable income from $54,201 to $86,350.)

When you’re working on your 2020 tax return, here are the tax brackets you’ll need:

2020 Tax Brackets for Single Filers and Married Couples Filing Jointly

—

2020 Tax Brackets for Married Couples Filing Separately and Head-of-Household Filers

When you’re ready to focus on your 2021 taxes, you’ll want to use the following tax brackets:

2021 Tax Brackets for Single Filers and Married Couples Filing Jointly

—

2021 Tax Brackets for Married Couples Filing Separately and Head-of-Household Filers

How the Tax Brackets Work

Suppose you’re single and have $90,000 of taxable income in 2020. Since $90,000 is in the 24% bracket for singles, would your tax bill simply be a flat 24% of $90,000 – or $21,600? No! Your tax would actually be less than that amount. That’s because, using marginal tax rates, only a portion of your income would be taxed at the 24% rate. The rest of it would be taxed at the 10%, 12%, and 22% rates.

Here’s how it works. Again, assuming you’re single with $90,000 taxable income in 2020, the first $9,875 of your income is taxed at the 10% rate for $988 of tax. The next $30,250 of income (the amount from $9,875 to $40,125) is taxed at the 12% rate for an additional $3,630 of tax. After that, the next $45,400 of your income (from $40,126 to $85,525) is taxed at the 22% rate for $9,988 of tax. That leaves only $4,475 of your taxable income (the amount over $85,525) to be taxed at the 24% rate, which comes to an addition $1,074 of tax. When you add it all up, your total 2020 tax is only $15,680. (That’s $5,920 less than if a flat 24% rate was applied to the entire $90,000.)

Now, suppose you’re a millionaire (we can all dream, right?). If you’re single, only your 2020 income over $518,400 is going to be taxed at the top rate (37%). The rest will be taxed at lower rates as described above. So, for example, the tax on $1 million for a single person in 2020 is $334,427. That’s a lot of money, but it’s still $35,573 less than if the 37% rate were applied as a flat rate on the entire $1 million (which would result in a $370,000 tax bill).

The Marriage Penalty

The difference between bracket ranges sometimes creates a “marriage penalty.” This tax-law twist makes certain married couples filing a joint return — typically, where the spouses’ incomes are similar — pay more tax than they would if they were single. The penalty is triggered when, for any given rate, the minimum taxable income for the joint filers’ tax bracket is less than twice the minimum amount for the single filers’ bracket.

Before the 2017 tax reform law, this happened in the four highest tax brackets. But now, as you can see in the tables above, only the top tax bracket contains the marriage penalty trap. As a result, only couples with a combined taxable income over $622,050 are at risk when filing their 2020 federal tax return. For 2021 returns, the marriage penalty is possible only for married couples with a combined taxable income above $628,300. (Note that the tax brackets for your state’s income tax could contain a marriage penalty.)