With the tax season officially upon us, it's likely you'll be reaching out to your CPA or financial advisor to begin the tax filing process shortly (if you haven't already). Before doing so, it may be helpful to know what your tax bracket will likely be this year - especially if COVID-19 impacted your earnings.
The seven 2020 tax rates themselves didn't change (they are the same as those in effect for the 2019 calendar year), however, the tax bracket ranges were modified based on inflation. Because of this, it's possible you could be in a different tax bracket for 2020 than the last time you reported your taxes, even if your income has not changed.1
Reminder: Tax Brackets Are Marginal
The IRS divides income into different tax rates. Each subsequent portion of your income will have an increased tax rate. For example, if you are a single filer who made $40,125 in 2020, your first $9,875 will be taxed at 10 percent. The next portion of your income will be taxed at an increased rate; from $9,875 to $40,125, your tax rate will be 12 percent.
As your income increases, you’ll fall into higher tax brackets and will have a higher tax rate for each portion of your income.
Why Would My Tax Bracket Be Different?
The IRS regularly adjusts tax brackets to take inflation into consideration. This is because, with inflation, people will face higher prices, meaning the purchasing power of their dollar is decreased. Knowing this, the IRS adjusts brackets in order to avoid bracket creep, a circumstance that occurs when inflation pushes your income into a higher tax bracket, or credits and deductions are reduced. In this scenario, an individual may not actually have increased purchasing power or greater disposable income, even with an increase in wages and salaries.2
With the onset of COVID-19 and the resulting economic downturn, millions of Americans lost their jobs and business owners were forced to cease operation for months at a time. If your income was impacted by the financial hardships caused by COVID-19, you may fall into a different tax bracket this filing season as well.
2020 Tax Brackets
Without further ado, here are the 2020 tax brackets according to your filing status and income from the IRS.1
10% Tax Rate
- Single Individuals: from $0 to $9,875
- Married Individuals Filing Jointly: from $0 to $19,750
- Heads of Households: from $0 to $14,100
- Married Individuals Filing Separately: from $0 to $9,875
12% Tax Rate
- Single Individuals: from $9,876 to $40,125
- Married Individuals Filing Jointly: from $19,751 to $80,250
- Heads of Households: from $14,101 to $53,700
- Married Individuals Filing Separately: from $9,876 to $40,125
22% Tax Rate
- Single Individuals: from $40,126 to $85,525
- Married Individuals Filing Jointly: from $80,251 to $171,050
- Heads of Households: from $53,701 to $85,500
- Married Individuals Filing Separately: from $40,126 to $85,525
24% Tax Rate
- Single Individuals: from $85,526 to $163,300
- Married Individuals Filing Jointly: from $171,051 to $326,600
- Heads of Households: from $85,501 to $163,300
- Married Individuals Filing Separately: from $85,526 to $163,300
32% Tax Rate
- Single Individuals: from $163,301 to $207,350
- Married Individuals Filing Jointly: from $326,601 to $414,700
- Heads of Households $163,301 to to $207,350
- Married Individuals Filing Separately: from $163,301 to $207,350
35% Tax Rate
- Single Individuals: $207,351 to $518,400
- Married Individuals Filing Jointly: from $414,701 to $622,050
- Heads of Households: from $207,351 to $518,400
- Married Individuals Filing Separately: from $207,351 to $311,025
37% Tax Rate
- Single Individuals: over $518,400
- Married Individuals Filing Jointly: over $622,050
- Heads of Households: over $518,400
- Married Individuals Filing Separately: over $311,025
In addition to the tax inflation adjustments, the IRS also altered standard deductions. While the above rates and brackets are at the federal level, different states might have varying brackets and rates.
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Alex Collins is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 333 N Indian Hill Blvd., Claremont, CA 91711 Ph: 909-399-1100. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly-owned subsidiary of Guardian. Quantified Financial Partners is not an affiliate or subsidiary of PAS or Guardian. This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Material is for educational purposes only. By providing this content we are not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation. Please contact a financial professional for guidance and information that is specific to your individual situation. All investments contain risk and may lose value. AR license #7264699 CA License #OH24806 # 2021-117445 Exp 03/2023