What are the IRS Federal Tax Brackets? 2021, 2022

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People with greater taxable earnings pay higher federal income tax rates in the United States, which has a progressive tax structure.

Being "in" a tax bracket does not imply that you pay that federal income tax rate on all of your earnings. People with greater taxable earnings pay higher federal income tax rates, while those with lower taxable incomes pay lower federal income tax rates under the progressive tax system.

The government determines how much tax you owe by splitting your taxable income into chunks — commonly known as tax brackets 2021 — and taxing each piece at the appropriate tax rate. The beauty of this is that, regardless of your tax bracket, you will not pay that tax rate on your full income. (This is the notion behind the effective tax rate.)

Assume you're a single taxpayer with $32,000 in taxable income. In 2021, you will be in the 12% tax rate. But do you pay 12% on the whole $32,000? No. Actually, you only pay 10% on the first $9,950, then you pay 12% on the remainder.

If you had $50,000 in taxable income, you would pay 10% on the first $9,950 and 12% on the portion of income between $9,951 and $40,525. The remainder would be taxed at 22 percent since portion of your $50,000 in taxable income falls into the 22 percent tax bracket.

Even though you're in the 22 percent tax bracket, the entire cost would be about $6,800, or roughly 14 percent of your taxable income. That 14 percent is referred to be your effective tax rate. See tax brackets for married filing jointly.

What exactly is a marginal tax rate?

Your marginal tax rate is the tax rate you would pay if you earned an additional dollar of taxable income. This is usually equivalent to your tax bracket.

For example, if you're a single filer with $30,000 in taxable income, you'd be in the 12% tax bracket. If your taxable income increased by one dollar, you would be taxed 12 percent on that additional dollar as well.

However, if you had $41,000 in taxable income, most of it would still be in the 12 percent tax bracket, but the final few hundred dollars would be in the 22 percent tax bracket. Your marginal tax rate would be 22%.

How to decrease your tax bracket and pay a lower federal income tax rate

Credits and deductions are two typical strategies to reduce your tax payment. Tax credits immediately lower the amount of tax you owe; they do not change your tax rate.

Tax deductions, on the other hand, lower the amount of your income that is taxed. Deductions generally reduce your taxable income by the percentage of your highest federal income tax rate. So, if you pay 22 percent in taxes, a $1,000 deduction may save you $220.

In other words, take advantage of any tax breaks available to you; they may decrease your taxable income and perhaps move you into a lower tax band, resulting in a reduced tax rate. Try the TurboTax Calculator to see how much you owe in taxes.