Every year the IRS adjusts its different tax brackets in order to make sure that inflation doesn’t inadvertently push people into higher tax brackets.
This is known as bracket creep and there are 40 different provisions that are taken into account to prevent this. So, if you’re wondering which tax bracket you fall into this year, we’re going to list the basic IRS Federal Tax Brackets.
The Standard Rate of 10%
Anyone who earns taxable income will be automatically taxed at the standard rate of 10%. This applies to all filing statuses.
Low to Middle Earners
We will first begin with single taxpayers. For the 12% tax bracket, they will need an income of $9,700. They will move into the 22% tax bracket if they hit $39,475. Finally, they will move into the 24% tax bracket once they hit $84,200.
For married taxpayers filing jointly, the 12% tax bracket begins at $19,400. They will move into the 22% tax bracket once they reach $78,950, before moving into the 24% tax bracket if they make a joint taxable income of $168,400.
Again, we will start with single taxpayers. It starts with $160,725 to move into the 32% tax bracket. This is followed by an income of $204,100 to move into the 35% tax bracket and $510,300 to qualify for the highest 37% tax bracket.
For married taxpayers filing jointly, the 32% tax bracket begins at $321,450. This is followed by the 35% tax bracket that starts at $408,200, and the final 37% tax bracket that starts at $612,350.
Long-Term Capital Gains Work Differently
Keep in mind that long-term capital gains work differently than other types of income, therefore, they have different tax brackets.
As a single taxpayer, you only pay the initial 15% tax rate on long-term capital gains when you reach $39,375. This goes up to $434,550 for the 20% tax bracket.
For married taxpayers filing jointly, the rates are 15% on $78,750 and above. This is followed by $488,850 for the 20% bracket.
Why You Pay Less Tax
The IRS tax brackets are just half the story. The fact is that you pay less tax because these brackets don’t consider tax credits and deductions.
Low to middle income taxpayers will earn much more than these brackets, but the influence of credits and deductions will force them into lower brackets.
Therefore, make sure you use online tax preparation software when filing taxes, to ensure you’re getting every credit and deduction you possibly can. You can also try the free tax bracket calculator to see which bracket you fall into.