Guide to Federal Tax Brackets

2011 & 2012 FEDERAL TAX BRACKETS

2011 FEDERAL TAX BRACKETS

SINGLE EARNERS

2011 FEDERAL TAX BRACKETS

• Taxable Income:

Income Tax:

• $0 - $8,500

10% of the amount over $0

• $8,501 - $34,500

$850 plus 15% of the amount over $8,500

• $34,001 - $83,600

$4,750 plus 25% of the amount over $34,000

• $82,601 - $174,400

$17,025 plus 28% of the amount over $83,600

• $174,401 - $379,150

$42,449 plus 33% of the amount over $174,400

• $379,151 +

$110,016.50 plus 35% of the amount over $379,150

MARRIED FILING JOINTLY

2011 FEDERAL TAX BRACKETS

• Taxable Income:

Income Tax:

• $0 - $17,000

10% of the amount over $0

• $17,001 - $69,000

$1,700 plus 15% of the amount over $17,000

• $69,001 - $139,350

$9,500 plus 25% of the amount over $69,000

• $139,351 - $212,300

$27,087.50 plus 28% of the amount over $139,350

• $212,301 - $379,150

$47,513.50 plus 33% of the amount over $212,300

• $379,150 +

$102,574 plus 35% of the amount over $379,150

MARRIED FILING SEPARATELY

2011 FEDERAL TAX BRACKETS

Federal Tax Brackets for those who are Married but File Separately:

• Taxable Income:

Income Tax:

• $0 - $8,500

10% of the amount over $0

• $8,501 - $34,500

$850 plus 15% of the amount over $8,500

• $34,501 - $69,675

$4,750 plus 25% of the amount over $34,500

• $69,676 - $106,150

$13,543.75 plus 28% of the amount over $69,675

• $106,151 - $189,575

$23,756.75 plus 33% of the amount over $106,150

• $189,575 +

$51,287 plus 35% of the amount over $189,575

HEAD OF HOUSEHOLD

2011 FEDERAL TAX BRACKETS

Federal Tax Brackets for those who file as Head of Household

• Taxable Income:

Income Tax:

• $0 - $12,150

10% of the amount over $0

• $12,151 - $46,250

$1,215 plus 15% of the amount over $12,150

• $46,251 - $119,400

$6,330 plus 25% of the amount over $46,250

• $119,401 - $193,350

$24,617.50 plus 28% of the amount over $119,400

• $193,351 - $379,150

$45,323.50 plus 33% of the amount over $193,350

• $379,151 +

$106,637.50 35% of the amount over $379,150

2012 FEDERAL TAX BRACKETS

SINGLE EARNERS

2012 FEDERAL TAX BRACKETS

• Taxable Income:

Income Tax:

• $0 - $8,700

10% of the amount over $0

• $8,701 - $35,350

$870 plus 15% of the amount over $8,700

• $35,351 - $85,650

$4,867.50 plus 25% of the amount over $35,350

• $85,651 - $178,650

$17,442.50 plus 28% of the amount over $85,650

• $ 178,651 - $388,350

$43,482.50 plus 33% of the amount over $178,650

• $ 388,350 +

$112,683.50 plus 35% of the amount over $388,350

MARRIED FILING JOINTLY

2012 FEDERAL TAX BRACKETS

• Taxable Income:

Income Tax:

• $0 - $17,040

10% of the amount over $0

• $17,041 - $70,700

$1,740 plus 15% of the amount over $17,040

• $70,701 - $142,700

$9,735 plus 25% of the amount over $70,700

• $ 142,701 - $217,450

$27,735 plus 28% of the amount over $142,700

• $ 217,451 - $388,350

$48,665 plus 33% of the amount over $388,350

• $388,350 +

$105,062 plus 35% of the amount over $388,350

MARRIED FILING SEPARATELY

2012 FEDERAL TAX BRACKETS

Federal Tax Brackets for those who are Married but File Separately

• Taxable Income:

Income Tax:

• $0 - $8,700

10% of the amount over $0

• $8,701 - $35,350

$850 plus 15% of the amount over $8,700

• $35,351 - $71,350

$4,750 plus 25% of the amount over $35,350

• $ 71,351 - $108,725

$13,543.75 plus 28% of the amount over $71,350

• $108,726 - $194,175

$23,756.75 plus 33% of the amount over $194,175

• $194,175 +

$51,287 plus 35% of the amount over $194,175

HEAD OF HOUSEHOLD

2012 FEDERAL TAX BRACKETS

Federal Tax Brackets for those who file as Head of Household

• Taxable Income:

Income Tax:

• $0 - $12,400

10% of the amount over $0

• $12,401 - $47,350

$1,400 plus 15% of the amount over $12,400

• $47,351 - $122,300

$6,642 plus 25% of the amount over $47,350

• $122,301 - $198,050

$25,380 plus 28% of the amount over $122,300

• $198,051 - $388,350

$46,590 plus 33% of the amount over $198,050

• $388,350 +

$109,389 plus 35% of the amount over $388,350

What are Federal Tax Brackets?

The federal income tax in the United States is a progressive model where individuals who earn higher wages are taxed at a higher percentage and vice versa. The federal tax brackets represent the divisions at which tax rates are implemented; these federal tax rates will change based on a given fiscal year in accordance with inflation, legislation and the macro-economic standing of the country. In essence, the federal tax brackets represent cutoff values for an earner’s taxable income—incomes past a certain point will be taxed at the next available tax bracket.

Additionally the tax rates will fluctuate for individuals who file separately or for those couples who file joint returns. The tax rate is dependent on income, meaning the amount of money an individual earns from his or her job; however, the positioning within federal tax brackets will also fluctuate given the delivery of tax deductions, tax credits, and the status of the filing.

The following federal tax brackets will elucidate on the taxable incomes of American earners and the separate filing statuses that are present in the Federal income taxation system.

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Introduction

Paying taxes is a necessary evil, but understanding the tax system is anything but evil. It helps you plan your finances, minimize your tax liability, avoid penalties, and ultimately save money. One of the essential components of the tax system is the Federal Tax Brackets, which determines your marginal tax rate and how much you owe the government.

In this comprehensive guide, we will explain everything you need to know about the Federal Tax Brackets, including how they work, the latest updates for 2021 tax year, and some valuable tips on how to optimize your tax situation.

What are Federal Tax Brackets?

Federal Tax Brackets are a range of income levels that determine how much tax you owe the government. The United States has a progressive tax system, meaning that the higher your income, the higher your tax rate (or tax bracket) and the more progressive distribution of tax liabilities within the population. Your tax bracket determines your marginal tax rate, which is the tax rate applied to your last dollar earned.

In contrast, your effective tax rate is the average tax rate you pay on your total income, which is lower than your marginal tax rate. That's because the marginal tax rate is not applied to your entire income, only to the additional dollar earned that places you into a higher tax bracket. The higher your income, the higher your marginal tax rate is, but it does not apply to your entire income; only the portion that falls under that particular tax bracket.

For example, assume that your taxable income is $70,000. According to the 2021 tax brackets, you are in the 22% tax bracket. However, that does not mean you will pay 22% of $70,000, which is $15,400. Instead, you will pay 10% on the first $9,950, 12% on the additional income between $9,951 and $40,525, and 22% on the remaining amount between $40,526 and $70,000.

How Federal Tax Brackets Work?

Federal Tax Brackets operate based on a marginal tax rate system, which means that income is taxed in steps or brackets: the higher income you earn, the higher tax bracket you'll fall into. Generally speaking, there are seven tax brackets in the United States, each coming with a different tax rate. The U.S. tax brackets are designed to be progressive, meaning that the higher your taxable income, the higher your marginal tax rate is.

Below are the Federal Tax Brackets for the 2021 tax year, according to the IRS:

• For Single Individuals

- 10% on taxable income between $0 and $9,950

- 12% on taxable income between $9,951 and $40,525
- 22% on taxable income between $40,526 and $86,375
- 24% on taxable income between $86,376 and $164,925
- 32% on taxable income between $164,926 and $209,425
- 35% on taxable income between $209,426 and $523,600
- 37% on taxable income over $523,600

• For Married Couples Filing Jointly

- 10% on taxable income between $0 and $19,900

- 12% on taxable income between $19,901 and $81,050
- 22% on taxable income between $81,051 and $172,750
- 24% on taxable income between $172,751 and $329,850
- 32% on taxable income between $329,851 and $418,850
- 35% on taxable income between $418,851 and $628,300
- 37% on taxable income over $628,300

• For Married Couples Filing Separately

- 10% on taxable income between $0 and $9,950

- 12% on taxable income between $9,951 and $40,525
- 22% on taxable income between $40,526 and $86,375
- 24% on taxable income between $86,376 and $164,925
- 32% on taxable income between $164,926 and $209,425
- 35% on taxable income between $209,426 and $314,150
- 37% on taxable income over $314,150

• For Head of Household

- 10% on taxable income between $0 and $14,200

- 12% on taxable income between $14,201 and $54,200
- 22% on taxable income between $54,201 and $86,350
- 24% on taxable income between $86,351 and $164,900
- 32% on taxable income between $164,901 and $209,400
- 35% on taxable income between $209,401 and $523,600
- 37% on taxable income over $523,600

The brackets assigned according to your filing status determine the rate of income tax you are liable to pay. The tax brackets are designed to benefit those with low, middle or higher incomes.

For example, assume that you are a single individual who earns $60,000 taxable income in 2021. Your tax liability is calculated as follows:

- 10% on the first $9,950, which is $995

- 12% on the income between $9,951 and $40,525, which is $3,669
- 22% on the income between $40,526 and $60,000, which is $4,385

Thus, your total federal tax liability is $9,049. It may seem like a substantial sum, but it's still much lower than if you were to pay your entire taxable income at the highest tax rate of 37%.

2021 Federal Tax Bracket Updates

The tax brackets for 2021 were released by the IRS in 2020, and they came slightly modified compared to the previous year. The adjustments are based on an inflation rate of 1.3% and are mandated by law to ensure that inflation does not erode the purchasing power of the dollar and maintain the indexation of the tax system. Here are some of the updates to the Federal Tax Brackets for 2021:

1. Higher Standard Deduction

The IRS has increased the standard deduction for individual taxpayers by $150 for singles and $300 for married couples filing jointly. The higher standard deductions are a win for taxpayers, reducing their taxable income and consequently their tax liabilities. The following is the 2021 standard deductions for the different taxpayers:

• For Single Individuals: $12,550

• For Married Couples Filing Jointly: $25,100
• For Married Couples Filing Separately: $12,550
• For Head of Household: $18,800

2. Narrowed Bracket Widths

The IRS has adjusted the widths of the tax rate brackets to account for inflation and ensure that taxpayers get a fair and progressive tax system. The minimum and maximum income thresholds for each bracket are adjusted to ensure that the increase in the cost of living doesn't push more taxpayers into a higher tax bracket. The tax rate increases in increments of 2% to 3%, depending on the income bracket.

3. Increase in Social Security Wage Base

The Social Security Wage Base (SSWB) is the maximum compensation the IRS uses to calculate Social Security taxes. For 2021, the SSWB increased by $5,100 to $142,800, a 3.7% increase from the previous year. This means that the maximum Social Security tax you'll pay is $8,853.60.

Tax Planning: Tips and Strategies to Optimize Your Tax Situation

The Federal Tax System is often complex and confusing, but it's essential to know how it works. That knowledge helps you make informed decisions that lower your tax liabilities, maximize your savings, and minimize your exposure to penalties. Here are some tips and strategies to optimize your tax situation:

1. Utilize Tax Credits, Deductions and Exemptions

Tax credits, deductions, and exemptions help reduce your taxable income, lowering your tax liabilities, as well as wasting your dollar for dollar tax bill. Credits are more beneficial to taxpayers than deductions since they reduce your income tax liability on a dollar-for-dollar basis. Deductions reduce your income by the entire amount of the qualifying expense.

Some common tax credits and deductions include:

• Retirement Account Contributions: If you have a 401(k), IRA, or other qualified retirement account, make the largest contribution possible before the contribution deadline.

• Education Credits and Deduction: If you paid tuition fees, interests on student loans or other educational expenses, you may be eligible for education credits or deduction, such as the American Opportunity Credit or Lifetime Learning Credit.

• Charitable Contributions: If you donated to a qualified charitable organization, you may claim a deduction for the amount on your tax return.

• Earned Income Tax Credit (EITC): EITC is a credit for low-to-moderate-income earners who work and meet other eligibility requirements.

2. Take Advantage of Employer Benefits

Many employers offer benefits that help reduce your tax liabilities, such as 401(k) plans, Flexible Spending Accounts(FSA), Health Savings Accounts (HSA), Transportation benefits, and other options. Maximize these benefits, and you'll pay less tax and benefit more from your employer's generosity.

3. Time Your Income and Expenses

Income timing is a strategy that involves moving your earnings into or out of different tax years to minimize your tax liabilities in a specific year. For example, if you expect to earn a lot of money in the current year, you might slow down receivables and defer your billing until the beginning of the following year.

Expense timing involves shifting your expenses into or out of different tax years to maximize your deductions. You can do this by prepaying for certain expenses, taking advantage of timing rules for business equipment purchases, and more.

4. Consult a Tax Professional

Although you can handle your taxes by yourself, getting help from a tax professional can be beneficial as they have more knowledge about taxes. Tax professionals typically know about more current changes in the tax law that may enable you to take advantage of deductions and credits that you otherwise wouldn't know about. They may also notice potential errors in your tax filing before submitting.

Conclusion

The Federal Tax Brackets are an essential component of the United States tax system, determining your marginal tax rate and how much you owe the government. Understanding how tax brackets work and strategizing to optimize your tax situation can help you minimize your tax obligations and maximize your savings. The 2021 tax year brought about some changes in the tax brackets, and tax credits, deductions, and employer benefits can help reduce your tax liabilities. Speak to a tax professional if necessary, or you can file your taxes online using the many readily available free tax-filing options available to you.