Tax Brackets 2021-2022: What is my Tax Bracket?

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Oct 12, 2022

Tax Brackets 2021-2022: What is my Tax Bracket?

Tax Brackets 2022

The Internal Revenue Service (IRS) annually changes federal income tax rates, exemptions, and thresholds. These numbers apply to the parts of the tax law that are changed every year to account for inflation.

For the 2022 tax year, the top tax rate for individual taxpayers will still be 37%, and the standard deduction, tax bracket ranges, other deductions, and phase-outs will be changed each year to account for inflation.

Federal Tax Brackets – Overview

Most federal tax brackets are progressive, meaning the tax rate goes up as the income increases.

But this doesn’t mean that clients have to pay more in taxes because they can use these many deductions and credits to reduce the amount of tax they owe.

When federal tax brackets were made in 1913, they primarily aimed to ensure Americans were taxed relatively and to help pay for wars. But as the years went by, special interest groups pushed for more and more tax breaks. As a result, in 2019, 91 corporations, including 60 of the Fortune 500, paid no taxes in 2018.

This happened because of the Tax Cuts and Jobs Act (TCJA), which then-President Donald Trump signed in December 2017 with the support of a Republican House and Senate. The TCJA cut the corporate tax rate for good, but it only cut the rates for individuals for a short time.

This was because people were worried about how much more debt these new tax cuts would add to the U.S.’s already massive debt. When the law passed, the thought passed that the debt would grow by as much as $1.9 trillion over the next ten years.

In reality, the debt grew by almost $1 trillion every year from 2018 to 2020. With the COVID-19 pandemic coming in March 2020, the spending needed to stop it, and the bad effects it will have on the economy, the federal budget deficits are rising to levels not seen since World War II.

High-income earners had their taxes cut the most, while low-income earners also had their taxes cut, but they might have to pay more if and when the individual tax changes end in 2025, as planned. Given how unpopular it is to raise taxes—as shown by the fact that the Bush tax cuts from 2001 were extended past their expiration date in 2010—the TCJA’s rates could also stay in place after 2025.

Federal Tax Brackets – History

The federal tax bracket was made when the 16th Amendment was passed in 1913.

In 1913, the highest tax rate was 1% on incomes over $3,000, with an additional 6% tax on incomes over $500,000.

But it didn’t take long before the rate went up a lot. As the costs of World War I became clear by 1918, the highest tax rate reached 77%. During the 1920s, when times were good, rates went back down, but they went back up during the Great Depression.

During the debates about the Troubled Asset Relief Program (TARP) at the start of the Great Recession in 2008, this was often used as an example of what not to do in hard times.

At the end of World War II, the highest tax rate was 94%. The rate stayed high in the years that followed, averaging around 70%. Starting with the Reagan administration in the 1980s, rates have been decreasing. As of 2021, there are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

The U.S. debt has grown a lot since the beginning of the 21st century. This is probably not a coincidence since the country has fought in several wars while lowering tax rates instead of raising them, as it did during previous wars.

How Tax Bracket Works – Recap

In the United States, we have a “progressive tax system,” which means that not all income is taxed at the same rate.

The tax rate on the first 10 percent of income is the lowest. The money your clients make above that, up to a certain amount, is taxed at the next higher rate (12%), and so on until they make so much that they don’t have to pay taxes. (I’m sorry for making fun of billionaires.)

It’s a bit of a misnomer to say someone is in the 22% tax bracket. That really means that they pay 22% of the part of their income that is taxed at the highest rate, which is only the money that falls into that tax bracket and not all of the money they make. This is called the marginal tax rate in tax terms.

Tax Bracket 2022

The tax bracket is based on how much money the customer makes and how much you as their CPA file (single, married filing jointly, married filing separately, head of household). The IRS changes tax brackets and other tax rules annually to consider inflation.

As you look at the tax brackets below, remember that the standard deduction, which is $12,550 for a single person and $25,500 for a married couple filing jointly, is not taxed. Since the amount they’re taxed on isn’t what they’re really making, this makes everyone’s tax rates a little bit lower.

Tax Rate For Single For Married Head of Household 
10% less than $10,275 less than $20,550 Up to $14,650
12% between $10,276 and $41,775 between $20,551 and $83,550 $14,651 to $55,900
22% between $41,776 and $89,075 between $83,551 and $178,150 $55,901 to $89,050
24% between $89,076 and $170,050 between $178,151 and $340,100 $89,051 to $170,050
32% between $170,051 and $215,950 between $340,101 and $431,900 $170,051 to $215,950
35% between $215,950 and  $539,900 between $431,901 and $647,850 $215,951 to $539,900
37% more than $539,901 more than $647,851 Over $539,900

To compare, here are the tax brackets for 2021:

Tax Rate For Single For Married Head of Household
10% less than $9,950 less than $19,900 Up to $14,200
12% between $9,950 and $40,525 between $19,900 and $81,050 $14,201 to $54,200
22% between $40,525 and $86,375 between $81,050 and $172,750 $54,201 to $86,350
24% between $86,375 and $164,925 between $172,750 and $329,850 $86,351 to $164,900
32% between $164,925 and $209,425 between $329,850 and $418,850 $164,901 to $209,400
35% between $209,425 and  $523,600 between $418,850 and $628,300 $209,401 to $523,600
37% more than $523,600 more than $628,300 Over $523,600

Tax Bracket 2022 – Example

Let’s start with a married couple with $190,000 in taxable income and filing a joint tax return. Keep in mind that these numbers are made before any deductions are made! They’ll have to:

10% federal income tax on the first $20,550 of income (which comes to $2,055 in taxes)
12% on dollars $20,551 up to $83,550 ($7,559.88 in taxes)
22% on $81,050 up to $172,750 ($20,174 in taxes)
24% on $172,750 up to $190,00 ($4,140 in taxes)

Before any deductions, this couple will pay a total of $33,928.88 in federal income taxes. This is about 18% of their income on average.

In 2022, a single person who earns $60,000 will pay:

On the first $10,275 of income, the federal government takes 10%, or $1,027.50.
12% of money between $10,276 and $41,775 (taxes of $3,779.88)
22% of $41,776 to $60,000 (taxes of $4,009.28)

Before deductions, a single American pays $8,816.66 in federal income tax, which is 15% of their income. For small talk at a cocktail party, this person can say that they are “in the 22% tax bracket” if the rate of tax they pay on their next dollar of income is 22%.

What’s the Big Deal?

Even though tax brackets are helpful, one should always try to make as much money as possible. Barrett says that for every dollar you make, you get more money. The only thing that changes is how much of that extra dollar you get to keep.

The most important thing about knowing the tax bracket is that the customer can use it to keep as much money as possible in the lower brackets. You do this by lowering their income that is taxed.

This can be done most effectively by Putting money into tax-deferred retirement accounts like a traditional IRA, 401(k), or 403(b). Your customers won’t have to pay taxes on those dollars in the year you give them. They’ll have to pay income taxes when they start taking money out. But they should be in a lower tax bracket by then, right?

Using flexible spending accounts (FSAs), including FSAs for the care of dependents and health savings accounts (HSAs). The taxable income for the year will also go down by the amount your customers save in these ways. Plus, if they use the money to pay for certain costs, they don’t have to pay taxes on it.

Take advantage of as many tax breaks as you can. When you take a tax deduction, the amount is taken off of the taxable income of the customer. Most people take the standard deduction, an amount you can automatically deduct from the customers’ income taxes without itemizing.

For 2022, the IRS has also raised the standard deduction:

  • In 2022, the standard deduction for single taxpayers and married people who file separately will be $12,950. This is $400 more than it was in 2021.
  • The standard deduction for married couples filing jointly is now $25,900, an increase of $800 from 2021.
  • Heads of households can now deduct $19,400, which is $600 more than in 2021.

Even though there is no limit on itemized deductions, the general rule is that you should take the standard deduction if the total of the itemized deductions is less than the standard deduction.

How to Calculate Taxable Income

Here are the three steps you need to take to figure out how much of the income is taxed:

  • Add up all of the earnings to figure out the gross income.
  • Subtract tax adjustments from the adjusted gross income to get the adjusted gross income.
  • Subtract the deductions from the income to get the taxable income.

First, add all the money your customer expected to make in 2021. This includes money from full-time jobs, part-time jobs, freelance work, rental properties, and other sources. Then, to figure out the gross income, take out any income the tax code says they don’t have to pay taxes on, like money from a life insurance policy.

Then, take any changes away from their total income. Adjustments could include money put into a traditional IRA, interest paid on a student loan, or money put into a health savings account. This number is the gross income after adjustments.

The last step is to take the adjusted gross income and subtract any deductions to get the taxable income. You can take the standard deduction, which is $12,550 for single filers and $18,800 for heads of household and married couples filing jointly, or itemize their deductions. This is the taxable income, which you can use to determine which tax bracket they fall into. However, remember that investment income is taxed differently than other income.

Take the gross income and subtract things like alimony, half of the self-employment taxes, the teacher’s education deduction, and the student loan interest deduction if they are teachers. These costs will lower the gross income, giving them their adjusted gross income and the amount of money that is taxed.

Marginal Tax Rate vs. Effective Tax Rate

On the federal income tax bracket, you see the marginal tax rate at the top. So, for example, a person with a taxable income of $55,000 will pay 22% in taxes. But not all of the taxable income is taxed at this rate.

Instead, in this example, the marginal tax rate applies only to taxable income beyond $40,525 in 2021, and your effective tax rate is as follows:

10% x $9,950 = $995

12% x ($40,525 – $9,950) = $3,669

22% x ($55,000 – $40,525) = $3,184.50

In this case, a person with $55,000 in taxable income owes $7,848.50 in taxes, which means their effective tax rate is about 14%.

Lower the Tax Rate – Steady Approach

You can legally cut the tax bill if you know the tax bracket. If the taxable income is right on the line between two tax brackets, there are a few ways to keep your client in the lower bracket and lower their tax bill.

Getting paid later and putting money into accounts like health savings accounts or retirement funds are two common ways to stay in a lower tax bracket. These strategies can help taxpayers lower their taxable income, which could help them keep a lower rate.

If a taxpayer has the option of recognizing or not recognizing some income in a particular year, such as with year-end bonuses payable out the week of Christmas or in early January, knowing where they are in their tax bracket and how much room there is before they hit that tax bracket could help them make a decision.

But to add, “Don’t worry too much about your tax bracket.”

FAQs – Tax Brackets

What is a head of household?

There is a special tax filing status called “head of household.” The IRS says taxpayers can’t be married or live with their spouse most of the year if they want to be the head of the household. Taxpayers also have to pay at least half the costs of caring for someone who qualifies, like a child or parent.

Did the tax rates go up or down?

Tax laws are often changed. Each tax bracket’s income bands are changed annually to account for inflation. This usually means that the income bands move up. In 2020, a single person who filed taxes paid 10% of their income up to $9,875; in 2021, they paid 10% of their income up to $9,950. The government sometimes changes the number of tax brackets or the amount of tax in each bracket. In 2017, the highest tax bracket was 39.7%, but in 2018, it dropped to 37%.

What were the tax rates for 2021?

The Internal Revenue Service (IRS) set the seven federal tax brackets for 2021 as 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The U.S. has a progressive federal tax system, which means that the lowest earners pay 20% of their income in taxes, while the highest earners pay 37%.

What are the tax rates for 2022?

The federal tax brackets for 2022 will be the same as in 2021. There are still a total of seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37% as the highest. In 2022, though, the income limits for all tax brackets increased to keep up with rising prices. So, how much tax you pay depends on how much money you make and how you file your taxes, like as a single filer or a married couple filing jointly.

What changed about the standard deductions for the 2022 tax year?
In 2022, the standard deduction went up. The IRS has set the following amounts for standard deductions:

$12,950 for single filers
$12,950 for married people who file separate tax returns
$19,400 for people in charge of a family
$25,900 if both people are married and file together
$25,900 for spouses who died.

In conclusion – Tax Brackets 2022

Every year, usually in November, the IRS changes tax brackets, standard deductions, tax credits, IRA rules, and other things that affect federal taxes for the next tax year. It’s important to know about any changes the IRS makes so that taxpayers can file their taxes with the help of a qualified CPA right and avoid paying too much or too little. If you are a CPA and want to do tax preparation outsourcing, then contact Unison Globus to assist you.

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