Why You Should Check Your Tax Bracket

Why You Should Check Your Tax Bracket

Everything You Need to Know About Your Tax Bracket

Within the United States tax system, your income is subject to a certain tax bracket. Depending on how much you make, the IRS will place your taxable income in one of the seven tax brackets where it’s subject to a 10% – 37% tax rate. Each bracket is assigned a different rate with varying dollar ranges for single filers, married joint filers, married filing separate filers, head of household filers, and qualifying widow(er) filers.

From year to year, the IRS will increase the tax brackets to account for rising inflation. This reduces the chance of “bracket creep” from occurring, where your income gets placed in a higher tax bracket. It’s important every year to determine which tax bracket you fall in by first calculating your taxable income (earned and investment income minus adjustments and deductions) to ensure your tax rate is correct.

Let’s take a look at the 2021 tax brackets and rates for a single taxpayer, head of household, and married couples filing jointly.

Single Taxpayer Marginal Rates

  • 10% for incomes of $9,950 or less
  • 12% for incomes over $9,950
  • 22% for incomes over $40,525
  • 24% for incomes over $86,375
  • 32% for incomes over $164,926
  • 35% for incomes over $209,425
  • 37% for incomes more than $523,600

Head of Household Marginal Rates

  • 10% for incomes $14,200 or less
  • 12% for incomes over $14,201
  • 22% for incomes over $54,201
  • 24% for incomes over $86,351
  • 32% for incomes over $164,901
  • 35% for incomes over $209,401
  • 37% for incomes more than $523,600

Married Couples Filing Jointly (or Qualifying Widow) Marginal Rates

  • 10% for incomes $19,900 or less
  • 12% for incomes over $19,900
  • 22% for incomes over $81,050
  • 24% for incomes over $172,750
  • 32% for incomes over $329,850
  • 35% for incomes over $418,850
  • 37% for incomes over $628,300

Important Tax Credits and Deductions to Know

If you want to get into a lower tax bracket, there are two ways that can help you reduce your income tax bill – tax credits and deductions. Tax credits reduce your tax bill by a dollar-for-dollar amount and can save you more in taxes. Examples of tax credits can include:

  • Earned income tax credit
  • Adoption tax credit
  • Child and dependent care tax credit
  • Credit for the elderly or the disabled
  • Energy credits

On the other hand, tax deductions reduce the amount of your income that is taxable. Suppose you have enough deductions to exceed your standard deduction for filing status. In that case, subtract that amount from your adjusted gross income to decrease your taxable income.

Get the Tax Help You Need with NJ’s Expert CPAs & Financial Advisors

Tobin & Collins has the experience and expertise to help you determine your federal and state tax bracket, tax credits, and tax deductions. Receive the tax guidance and help you need by calling us at (201) 487-7744 or by filling out an online contact form now.

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