Note: The following is for informational purposes only and should not be considered tax advice.
When it comes to income tax, the more you make, the bigger percentage of your income you’re expected to pay. Behind that common concept are income tax brackets—a less common concept. A tax bracket is a range of taxable income amounts expected to pay the same tax rate or percentage.
There are seven federal income tax brackets for tax year 2019 (to be filed in 2020): 10%, 12%, 22%, 24%, 32%, 35% and 37%. In order to determine which tax bracket you are in, you also need to know your filing status. There are four main federal tax filing statuses: single, married filing jointly, married filing separately, and head of household.
Here’s a primer on federal tax brackets to help you understand what exactly you’re paying Uncle Sam.
How Tax Brackets Work
Your tax bracket is not simply based on your salary at work. To determine your tax bracket, you’ll need to know your adjusted gross income, your filing status, what deductions you qualify for, and your taxable income.
Adjusted Gross Income
The IRS defines AGI “as gross income minus adjustments to income.” Put in plain English, that’s the money you actually earned minus certain pre-tax deductions, such as a contribution to a traditional IRA or alimony payments. If you work with a tax professional or an online tax preparation service, your AGI will likely be calculated for you as you answer some basic questions about your finances.
Your AGI doesn’t include your standard federal deduction or itemized deductions. In fact, your AGI determines what deductions and credits you are eligible for.
There are four main filing statuses that determine your taxes.
- Single: Applies to people who are not married and were not married at any point in 2109.
- Married Filing Jointly: Applies to married couples who combine their income to submit a single tax return.
- Married Filing Separately: For married couples who decide to file separate individual tax returns.
- Head of Household: Applies to individuals who are considered “single” and provide more than half of the support for a child or other dependent and claim that individual as an exemption.
Based on your AGI and filing status, you can determine what deductions you qualify for. You can take either the standard deduction for your filing status or itemize your deductions. Standard deductions are certainly easier, but itemizing your deductions may allow you to lower your taxable income even further. If you’re interested in itemizing your deductions, you can learn more on the IRS website.
The standard deductions for the 2019 tax year have increased slightly:
- Single: $12,200
- Married Filing Jointly: $24,400
- Married Filing Separately: $12,200
- Head of Household: $18,350
Note that tax deductions are not the same as tax credits. Tax deductions lower your taxable income. Tax credits directly reduce the amount of tax you owe.
Once you have calculated your deductions, subtract those from your AGI to determine your taxable income. If you’re single and your AGI is $90,000 and you decide to take the standard deduction of $12,200, your taxable income is $77,800.
Now that you know your taxable income and your filing status, you can determine which marginal tax bracket you are in.
Marginal Tax Bracket
The seven marginal tax brackets indicate how much of your taxable income you’re expected to pay in federal tax. These tax brackets take into account your taxable income and your filing status.
Table 1: 2019 income levels for each filing status for the seven tax brackets
|Tax Bracket||Single||Married Filing Jointly||Head of Household||Married Filing Separately|
|37%||$510,301 or more||$612,351 or more||$510,301 or more||$306,176 or more|
But wait! It’s not quite that simple. Remember, these tax brackets are marginal tax brackets. Your marginal tax is based on your “last dollar” of income. If your taxable income in 2019 was $150,000, your marginal tax rate would be 24%. The actual tax rate you pay is your effective tax rate. Your effective tax rate will be closer to 15%.
Instead of being subject to a blanket percentage, these tax brackets effectively chunk up your taxable income. You pay the tax rate on the portion of your income that falls into that particular tax bracket.
Let’s say you’re single and had $30,000 of taxable income in 2019, after your deductions. Your marginal tax rate is 12%. But for the first $9,700 of your income, you’re in the 10% tax bracket. You’ll pay $970, a 10% tax on this portion of your taxable income.
For the remainder of your taxable income, $20,300, you fall into the 12% tax bracket. You’ll pay $2,436, a 12% tax on this portion of your taxable income. In total, you will have paid $3,406 in taxes, an 11.35% effective tax rate.
About Filing Statuses
Your filing status really drives what tax bracket your taxable income puts you in, what standard deduction you receive and what tax deductions and credits you qualify for. You’ll want to make sure that you understand what your filing status is, which can get especially tricky if you’ve been married, divorced or separated or become widowed during the tax year.
To fall into the Single filing status is simple. If you weren’t married in 2019 or were legally divorced by the end of 2019, you’re considered single for tax purposes. Unmarried couples are not eligible to file joint tax returns and must file as Single or Head of Household.
I’m Married (or Was Married)
If you’re married, you have two filing status options—Married Filing Jointly and Married Filing Separately. As far as the IRS is concerned, if you were married on or before December 31, 2019, you can file as Married for the entire 2019 tax year.
When you file as Married Filing Jointly, you file a joint income tax return with your spouse and report your combined income, deductions and exemptions. Both you and your spouse are held responsible for the payment of the taxes owed. If your spouse fails to pay their share of the taxes due, you may be required to pay their share. If you don’t want to be held responsible for any taxes due if a spouse fails to pay, you can file as Married Filing Separately.
If you file Married Filing Separately, you should only report your own income and not any of your spouse’s income. You’ll also be eligible for credit and deductions based only on your own income. If you file separately, you both have to take the standard deduction or you both have to itemize your deductions. You can’t choose to do yours differently than your spouse.
In general, this filing status is also quite simple. It gets tricky if death or divorce comes into play.[i]
If your spouse died during the 2019 tax year—even if the death occurred on January 1, 2019—you can file as Married Filing Jointly. If you qualify, you can file as a Qualifying Widow(er) with Dependent Child for two years after that.
If you legally separate from or divorce your spouse during the tax year, you can start using the Single or Head of Household status. If you informally separated from your spouse in 2019 but your divorce wasn’t finalized until January 2, 2020, you must still file as Married for the 2019 tax year.
I’m the Head of a Household
To file as Head of Household,[ii] you must be single or considered unmarried and maintain a home for a qualifying child or dependent.
There are quite a few restrictions regarding who can file as Head of Household. To maintain a household, you must pay for 50% or more of the costs of maintaining your home. To be considered unmarried for the tax year, you must be legally separated or divorced by the end of the tax year or meet certain other requirements that qualify you as “considered unmarried.” A qualifying dependent must live with you for more than half the year. Keep in mind that only one person can claim a child as a dependent, generally the custodial parent as determined by a divorce decree.
I’m a Widow with a Dependent Child
The Widow(er) with a Dependent Child status effectively allows you to file as Married Filing Jointly for two years after the year of your spouse’s death. If your spouse died in June 2019, for example, you can file as Married Filing Jointly for the 2019, 2020, and 2021 tax years. You must have a dependent child in order to qualify for this filing status, and you must not have remarried. You also qualify for the highest standard deduction.
To qualify for this filing status for the 2019 tax year:
- Your spouse had to die before 2020 started
- You have to have a child you can claim as a dependent
- Your child had to live with you in your home all year
- You have to have paid more than 50% of the cost of maintaining your home
- You have to have been eligible to file a joint return with your spouse the year they passed away
Tax Brackets for 2020
The IRS has already announced the tax inflation adjustments for tax year 2020. The marginal tax rates and standard deductions have been adjusted for next year’s taxes.
Table 2: 2020 Income levels for each filing status for the seven tax brackets
|Tax Bracket||Single||Married Filing Jointly||Head of Household||Married Filing Separately|
|37%||Over $518,400||Over $622,050||Over $518,400||Over $518,400|
If you have questions regarding tax bracket percentages and the income thresholds, it can be a good idea to utilize the knowledgeable services of a professional tax preparer to help guide you through tax deductions, itemized deductions, and other tax complexities. The tax advice you gain with a tax preparer can help you maximize your refund and understand your tax liability.