Tax Rates 2021
Before mentioning this years tax rates, let’s begin by explaining what a tax rate is:
A tax rate is the percentage at which an individual or corporation is taxed. In the US we have a progressive tax rate system which means that the percentage of tax charged increases as the amount of taxable income increases. In other words, the greater the income, the higher the tax rate.
Now, let’s look at the individual income tax rates for the year 2021:
37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly).
35%, for incomes over $209,425 ($418,850 for married couples filing jointly).
32% for incomes over $164,925 ($329,850 for married couples filing jointly).
24% for incomes over $86,375 ($172,750 for married couples filing jointly).
22% for incomes over $40,525 ($81,050 for married couples filing jointly).
12% for incomes over $9,950 ($19,900 for married couples filing jointly).
0% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).
As an example, if you are a single taxpayer with a taxable income of $150,000, here's what your tax calculation would look like based on our progressive tax system:
$9,950 * 0% = $0
($40,525 - $9,950) * 12% = $3,669
($86,375 - $40,525) * 22% = $10,087
($150,000 - $86,375) * 24% = $15,270
TOTAL TAX = $29,026
For this individual, their MARGINAL tax rate would be the tax rate they pay on their next dollar earned: 24%
Because of our progressive tax system, your marginal tax rate is not the same as your effective tax rate.
For this individual, their EFFECTIVE tax rate would the total tax divided by their taxable income ($29,026/$150,000): 19.4%
Remember, your taxable income is the amount AFTER taking into consideration your allowable deductions and credits so your taxable income would generally be less than your total income.
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This post may not contain a complete analysis of the tax issues discussed herein and does not represent official conclusions or advice regarding the matter.