Every government depends on taxes paid by its citizens to run the nation. Tax is the primary source of revenue for countries. Without taxes, there would be shut down in government. In the United States, the federal government pays close attention to ensure that everyone pays taxes. However, to ensure fair pay in taxes, the federal government has a system that acts as a guide. This is often referred to as the Tax Bracket. This article explores US tax bracket 2019-2020 and the federal income tax brackets and rates.
Tax Brackets: What They Are
A tax bracket is a range of income that is subject to a special income tax rate. Tax brackets always result in a progressive tax system; hence, taxation always increases with an increase in a person’s income. On November 6, 2019, the IRS announced the 2019-2020 tax rates. These are the rates to be used for the fiscal year 2020, which will be filed in 2021. Please note that these rates apply not to the entire amount of taxable income but to the taxable income within that bracket. Taxable income means tax after deductions are applied.
Different Tax Brackets 2019-2020 – Federal Income Tax Brackets and Rates
There are different tax brackets that federal government uses to tax its citizens. Actually, the tax brackets are seven in number for 2019-2020. They include; 10%, 12%, 22%, 24%, 32%, 35% and 37%. Note that each bracket is dependent on filling status and taxable incomes. Below are the most recent income brackets and tax rates for the year 2020. This will also address the income earned the following year and will be used in preparing taxes in 2021.
Federal income tax brackets and rates:
| Tax Bracket | Single | Married |
| 10% | 0 to $9,700 | 0 to $19,400 |
| 12% | $9,701 to $39,475 | $19,401 to $78,950 |
| 22% | $39,476 to $84,200 | $78,951 to $168,400 |
| 24% | $84,201 to $160,725 | $168,401 to $321,450 |
| 32% | $160,726 to $204,100 | $321,451 to $408,200 |
| 35% | $204,101 to $510,300 | $408,201 to $621,350 |
| 37% | $510,301+ | $621,351+ |
Note that the standard deductions for single people is $12,200 and $24,400 for married people.
How Tax Rates Are Arrived At
Very clearly, tax brackets are important and they are arrived at after keen consideration of people’s earnings.
Tax brackets are categories in which the Gross Income Adjusted minus your exemptions will result in “taxable income.” Then, and only then, does this result match the “Tax Tables”. Relatively simple, except there are different tax tables for different taxpayers, and you have to go back to the definitions to find out which tax tables apply to your case. Only after all of that will the Tax Brackets come into play.
So, you find that taxable income falls within a tax bracket very quickly, and you do the simple calculation, as shown in the example below. For instance, if your 2019 taxable income was $110,000 and your tax bracket was “at least $100,000 but not more than $183,250,” you will multiply the taxable income by 28 percent and deduct $6,706.75 from the result and get your federal income tax. Here we go again -not so easy now — this is the federal income tax before many other possible additions and/or subtractions.
What if your taxable income was higher than $183,250, and you were, therefore, in another (higher) tax bracket, as many people fear. Nothing as extreme as we assume, because if you were just $10 higher than the $183,250 for example, you would find that ONLY THE EXCESS (the $10) would be taxed at the higher percentage of the rate (which is 33 percent).
Tax Brackets are formulated as a tool for taxing less if you have lower and higher taxable income for top income groups. Therefore, the tax law classified citizens with a continuum of income. So essentially, you can figure out a taxpayer’s total income and adjust the [brackets] revenue range for the applicable rates.
Most countries use a system of tax brackets to tax individual revenues. This arrangement incorporates what is called a progressive tax system, in which taxation rises slowly as the income of a person develops. It compares with a flat tax system in which all people, irrespective of their income levels, are taxed at the same rate.
Specific Deductions and Credits
The government does offer specific deductions and credits to all tax payers. Credits, deductions and all tax exemptions helps to cut the amount of taxes that one owes. These tax benefits are meant to reflect one’s ability to pay tax. Some of these tax deductions and credits include the Child Tax Credits. Here, there is tax credit on the cost of raising children. Deductions include tax deductions for charitable donations as well as payment for mortgages.
How Will I Know the Tax Bracket I Belong To?
If asked what the tax bracket is, most people will discuss the class to which their last income dollar, or their next income dollar, is paid. That is what is known as marginal tax bracket. That’s where majority of the planning of tax is based-minimizing that bracket. Then, in the fiscal year, you arrive there by controlling your business, personal deductions and gross income.
Another vital tax statistic for a business or person is the “effective tax rate.” By dividing the taxable income through your total tax obligation, you get to that. That can be just federal, or state and federal, or even all taxes paid for a business. It gives you a better understanding of how much the government exacts from your bottom line in all its shapes and forms.
There’s a lot of noise about how low, too high, etc. corporate tax rates are. What should be looked at – the effective tax rate is both for businesses and individuals – how much they actually pay. Why? For what? Because it doesn’t matter what the maximum marginal rate is if the taxpayer never gets there due to deductions, exemptions, etc.
For example, even when the highest tax rate was 90 percent, people squeak about it. What they weren’t looking at was how many people were actually taxed in that category-virtually no one was excluded, exempted.
You can go to several sites for the individual and find the Tax Brackets and Rate Schedule (not the Tax Tables) for your filing status, look down the schedule to see where your last taxable income dollar is hit and look at the rate at which the dollar is taxed. For example, if you were single in 2019 and your taxable income is $204,099, your next income dollar will be taxed at 35 percent, if you have another income dollar that will be hit at 37 percent-you’ve jumped into a higher bracket.
It’s pretty simple when you know the year’s gross earnings and use standard deductions; when you enquire about the marginal rate (the rate taxed when you the last earned money). If we only think about earned income, simply subtract $12k per head from the gross earnings. From here you check the tax tables and you will see the highest tax bracket you’re in.
For example, a couple filing jointly with a combined gross income of around $100,000 would have a taxable amount of $76,000 close to the top of the 12 percent tax bracket (around two thousand below the 22 percent).
How to Get Into A Lower Tax Bracket
Tax brackets are typically determined by the amount of income a person receives every year.
Of course, individuals do not want to pay more for taxes. They want to pay as little tax as possible. As such, they struggled to get into a lower tax bracket. But then, how can one do this?
Though dropping your tax bracket may be difficult, there are definitely different ways that can enable one to get into a lower tax bracket. These are tax credits and tax deductions. Tax credits are deductions in a person’s income tax bill. For example, if one has a 2000 dollars tax bill, yet they are eligible for a 5000 dollars in tax credits, their bills drop to 1500 dollars.
Compared to deductions, tax credits can save a person more in taxes. There exist tax deductions for many things. In the United States, the federal government provides tax credits for the cost of purchasing solar panels for a person’s home use. The government also offset the cost of child adoption. There are also education tax credits, to mention but a few.
Individuals who are not yet married can also fall into a lower tax bracket when they get married. Usually, people who are married fills a joint return, making them have a higher threshold in several tax brackets. If your partner is not employed or does not produce vast sums of money, you can quickly drop your tax bracket by getting married and starting to fill your tax together.
Also, if you are earning huge amounts of money annually but do not want to pay heavily on tax, consider enrolling in flexible spending accounts with your boss. Such accounts include health care of child care, among others. The federal government does provide a tax credit for the cost of child care. As such, the premiums that you pay for health care of child care will be considered a pretax income expense. This will help in reducing your net income on every paycheck.
Alternatively, you can consider buying a property. Usually, property and mortgage taxes are deductible, and this will help you drop a bracket. However, note that, before settling on any strategy to help you fall into a lower tax bracket, always make sure that you adhere to IRS set rules and regulations. So, consult a tax advisor to help you with any strategy you may want to develop. Rather than pay taxes and penalties later, it is better to get the right advice early.
Final Thoughts
To sum it up, the tax bracket is critically important to the US government. Without it, there would be a disparity in payment of taxes. Through it, it becomes easy for the government to plan. Also, individuals must know their tax brackets 2019-2020. This is why there is federal income tax brackets and rates available in government sites. If one may wish to drop into a lower tax bracket, they should consult their tax advisors to ensure that they do not break the law.
