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Your Guide to the 2021 U.S. Income Tax Brackets

Here's what to expect when you file your tax return.

[Updated: Feb 04, 2021] Jan 27, 2021 by Matt Frankel, CFP
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The IRS has officially released the 2021 tax brackets, as well as some other significant annual adjustments to capital gains, Social Security, and other taxes. With that in mind, here's a comprehensive look at the 2021 U.S. income tax brackets for ordinary income and capital gains, as well as a look at how the marginal tax bracket system in the U.S. works and some other tax rates Americans should be aware of.

The 2021 federal income tax brackets

Here's a look at the 2021 federal income tax brackets. To be clear, these are for the 2021 tax year, which is the tax return you'll file in the 2022 calendar year. (For the tax return you're preparing to file now, you can check out the 2020 tax brackets here.) There's more to know about the U.S. tax brackets than the numbers in these charts, so be sure to read the important concepts discussed in the next few sections as well.

The tax brackets are different for each tax filing status. So, we'll look at a separate table of tax brackets for each of the four most common filing statuses -- single, married filing jointly, head of household, and married filing separately.

2021 tax brackets for single filers

10% $0 - $9,950
12% $9,950 - $40,525
22% $40,525 - $86,375
24% $86,375 - $164,925
32% $164,925 - $209,425
35% $209,425 - $523,600
37% Above $523,600

Data source: IRS

2021 tax brackets for married couple filing a joint return

10% $0 - $19,900
12% $19,900 - $81,050
22% $81,050 - $172,750
24% $172,750 - $329,850
32% $329,850 - $418,850
35% $418,850 - $628,300
37% Above $628,300

Data source: IRS

2021 tax brackets for head of household filers

Before we look at the table of head of household tax brackets, it's important to clarify what this status means. The simple explanation is that the head of household status is designed for people who are unmarried but have dependents. Single parents commonly use head of household status, for example.

10% $0 - $14,200
12% $14,200 - $54,200
22% $54,200 - $86,350
24% $86,350 - $164,900
32% $164,900 - $209,400
35% $209,400 - $523,600
37% Above $523,600

Data source: IRS

2021 tax brackets for married couples filing separate returns

Contrary to popular belief, the tax brackets for married couples who choose to file separate returns aren't the same as for single filers. Instead, the income thresholds are half of what they are for the corresponding marginal tax brackets for joint filers.

10% $0 - $9,950
12% $9,950 - $40,525
22% $40,525 - $86,375
24% $86,375 - $164,925
32% $164,925 - $209,425
35% $209,425 - $314,150
37% Above $314,150

Data source: IRS

How the 2021 U.S. tax brackets work

You've now seen the 2021 U.S. tax brackets, but there's still a bit more you should know. These tax brackets aren't as simple as finding where your income falls and multiplying it by the applicable 2021 tax rate. In other words, if you are single and make $50,000 in 2021, this puts you in the 12% tax bracket. However, you don't simply take 12% of $50,000 ($6,000) and send it to the IRS.

Two important concepts to learn when it comes to the U.S. tax brackets are taxable income and marginal tax rates. So, let's look at these one at a time.

What is taxable income?

First, it's important to realize that these tax brackets are not based on your total, or gross, income. Instead, they are based on your taxable income, which is an entirely different figure.

Taxable income is determined by starting with your gross income and applying any tax deductions or adjustments to income you're entitled to. You can choose to use the standard deduction or you can choose to itemize deductions, whichever benefits you more.

There are some tax deductions (known as adjustments to income or "above the line" deductions) that every taxpayer is allowed to use -- the student loan interest deduction is a popular example. On the other hand, there are some, such as the mortgage interest deduction, that are only available to taxpayers who choose to itemize.

Here's a simple example of how you might calculate taxable income for a married couple who earns $120,000, chooses to use the 2021 standard deduction ($25,100), paid $2,000 in student loan interest, and contributes a combined $10,000 to their IRAs (also an above-the-line deduction).

ITEM Amount None

The U.S. marginal tax system

The second important concept to know about the tax brackets is how the marginal tax system works. Notice that the heading in each of the charts says "marginal tax rate." This means that this rate is assessed only on income within this range, not on a household's total taxable income.

In other words, for single filers, the 10% rate is applied to the first $9,950 of taxable income, regardless of how much taxable income they have in total. Then, the 12% rate is applied to the next $30,575 in taxable income, and so on. The filer's marginal tax rate is the rate that is applied to the highest portion of their income.

Calculating federal income tax

Let's take a look at an example of how the marginal tax bracket system works. We'll look at an example of a married couple filing a joint return. The couple has gross income of $250,000, but after applying all of their deductions and adjustments, their taxable income for 2021 is $210,000. Here's how we could calculate this couple's taxable income for the year:

  • $19,900 x 10% = $1,990
  • ($81,050 - $19,900) x 12% = $7,338
  • ($172,750 - $81,050) x 22% = $20,174
  • ($210,000 - $172,250) x 24% = $9,060

The total tax would be the sum of all of these figures, or $38,562. This would give this particular couple an effective tax rate of about 15.4% based on their gross income of $250,000.

It's also worth mentioning that any tax credits are applied after the income tax has been calculated. Tax credits reduce taxable income dollar for dollar. For example, the child tax credit is worth $2,000 per eligible child. If this couple has two children, the child tax credit would reduce their tax by $4,000, bringing the total bill down to $34,562.

Capital gains tax brackets

The tax brackets we've discussed so far are applicable to ordinary income. This includes wages from a job, bonuses, interest income, and several other common forms.

One type of income that is taxed differently is capital gains.

When it comes to capital gains, the IRS separates them into two broad categories:

  • Short-term
  • Long-term

Short-term gains occur when you sell an asset you've owned for a year or less and are taxed according to the ordinary income tax brackets we've already discussed.

On the other hand, long-term capital gains occur when you sell an asset you've owned for more than a year and get preferential tax treatment. Depending on your income, long-term capital gains are taxed at rates of 0%, 15%, or 20%, and the rate that applies to you is always lower than your corresponding marginal tax bracket for ordinary income.

For 2021, here are the three capital gains tax income tax brackets for the various tax filing statuses. Remember that these figures represent taxable income:

LONG-TERM CAPITAL GAINS TAX RATE Single Filers (taxable income) Married Filing Jointly Head of Household Married Filing Separately
0% $0 - $40,400 $0 - $80,800 $0 - $54,100 $0 - $40,400
15% $40,400 - $445,850 $80,800 - $501,600 $54,100 - $473,750 $40,400 - $250,800
20% Over $445,850 Over $501,600 Over $473,750 Over $250,800

In addition to long-term capital gains, these preferential tax rates also apply to qualified dividends. This refers to most stock dividends, and a minimum holding period applies. You can read a thorough discussion of qualified dividends if you have significant dividend income and want to know if it meets the definition.

To sum up this section, the U.S. tax code is designed to encourage long-term investment. If you sell an asset for a profit after holding it for over a year or if you are paid a dividend from a stock you owned for a certain length of time, that portion of your income is taxable at lower rates.

Net investment income tax

In addition to all of the marginal tax brackets and capital gains tax rates discussed so far, certain high-income individuals are required to pay an additional 3.8% tax on their investment income. Appropriately known as the net investment income tax, this tax was implemented as part of the Affordable Care Act and can be assessed on certain types of investment-related income, such as capital gains, interest income, dividends, rental income, and more.

So, who has to pay the net investment income tax? Simply put, the tax applies to households with investment income in excess of $200,000 in total income for single tax filers and $250,000 for joint filers.

Here's how this works. Let's say that you're single and have $160,000 in income from your job. You also sold a stock position for a $50,000 capital gain. This is a total of $210,000. So, the portion of your investment income that caused you to exceed the $200,000 limit is $10,000, which would be subject to the additional tax.

2021 Social Security taxes

There are no Social Security tax "brackets." Instead, there's a flat rate that applies to all earned income up to a certain limit. (Note: Earned income generally means wages from a job or self-employment income.)

The Social Security tax rate is 6.2% each for employers and their employees, up to a maximum of $142,800 in earned income for 2021. In other words, if you earn $150,000 in 2021, you'll pay a 6.2% Social Security tax on the first $142,800 and nothing on the additional $7,200.

If you're self-employed, you are required to pay both sides of the Social Security tax. Combined with the Medicare tax, which we'll discuss in the next section, this is known as the self-employment tax.

2021 Medicare taxes

Like the Social Security tax, there is no Medicare tax bracket, just a flat rate. It's also worth noting that the Social Security and Medicare taxes are collectively referred to as FICA (Federal Insurance Contributions Act) taxes.

The Medicare tax rate is significantly lower than the Social Security rate at just 1.45% of earned income. However, unlike Social Security tax, there is no income limit -- the 1.45% rate applies to all earned income, even if it's in the millions. In addition, there is an additional Medicare tax of 0.9% that applies to earned income over certain thresholds, such as $250,000 for married couples filing jointly.

The QBI (pass-through) deduction for small business income

Although it's technically not a tax "bracket," the new qualified business income (QBI) deduction is worth mentioning. Also known as the pass-through tax deduction, this allows taxpayers to deduct as much as 20% of their income that comes from pass-through businesses, such as a sole proprietorship, partnership, LLC, or S-Corp.

In other words, if you're a freelancer with taxable income of $100,000, the QBI deduction can reduce your taxable income to $80,000. This has the effect of reducing your marginal tax bracket by up to 20%.

Don't forget about state and local taxes

It's important to mention that the tax brackets and various other tax rates discussed in this article are referring to federal taxes. Depending on where you live, your state and local governments may have their own state income taxes (and in some cases, local income taxes), along with a completely different set of tax brackets that are applied to your income.

How could this change in the future?

For one thing, it's important to realize that the U.S. tax brackets change every year. The IRS adjusts the income ranges in the tax brackets upward to keep up with inflation. The same can be said for capital gains tax brackets and the maximum Social Security taxable income.

However, there could be significant tax bracket changes on the horizon. As the Tax Cuts and Jobs Act exists in its current form, the marginal tax rates are set to revert back to their pre-2018 levels after 2025. And with the Biden administration planning to push for certain tax hikes on high earners, there could be changes within the next year or two.

The bottom line is that these are the tax brackets in the United States for the 2021 tax year, but there's no way to know for sure what they'll be in 2022 and beyond.

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