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- How much you pay in federal income taxes depends, in part, on what tax bracket you fall into.
- There are seven tax brackets with tax rates ranging from 10% to 37%, and the thresholds are updated every year for inflation.
- Your tax bracket applies to only the amount you earn above the minimum income threshold for that bracket. For income below that limit, you pay the same amount of federal income taxes as everyone else, even if they earn less overall.
- This post has been reviewed for accuracy by Thomas C. Corley, CPA.
- Read more personal finance coverage.
America operates on a progressive tax system. That means as a person earns more and progresses through tax brackets, their income tax rate increases for each level of income.
President Donald Trump’s tax plan went into effect in January 2018, mandating new income tax brackets for nearly all American taxpayers. There are seven federal income tax brackets in total, which are adjusted each year for inflation.
How much you pay in income taxes depends on several factors, including whether you’re single, unmarried with qualifying dependent, or married, and, of course, how much you earn.
Below are the new federal income tax brackets for this year, which apply to income earned in 2020, for single filers, heads of household, and married people who file jointly.
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If you earn $50,000 a year as a single filer, that puts you in the 22% tax bracket in 2020, because you earn more than $40,125 but less than $85,525.
But while 22% of $50,000 is $11,000, you’re not paying $11,000 in taxes. Your tax bracket applies to only the amount you earn above the minimum income threshold for that bracket. For income below that limit, you pay the same amount of federal income taxes as everyone else, even if they earn less overall.
Here’s how the calculation works for a single taxpayer in 2020:
- Figure out your taxable income: annual salary minus deduction(s).
- Everyone pays a 10% federal-income tax rate on their first $9,875 of taxable income.
- Everyone pays a 12% federal-income tax rate on their next $9,876 to $40,125 of taxable income.
- Everyone pays a 22% federal-income tax rate on their next $40,126 to $85,525 of taxable income.
- And so on and so forth.
One notable thing about this kind of tax setup is that the amount of taxes owed by someone steadily increases as that person’s amount of income increases. It’s not a monumental change when people jump from one tax bracket to another.
Let’s run through how this would work for an imaginary person: John, who earns $40,000. To keep it simple, let’s say he makes all his money from his work salary and has no dependents.
For his 2020 taxes, John would subtract the standard deduction ($12,400) and take zero personal exemptions, since they were eliminated with the GOP tax law.
That makes his taxable income $27,600, putting him in both the 10% and 12% tax brackets.
Here’s how to estimate how much he would owe in taxes:
- The first $9,875 of his $27,600 total taxable income is taxed at a 10% rate, yielding $987.50 in taxes.
- Then, his income between $9,875 and $27,600 – a total of $17,725 – is taxed at a 12% rate, yielding $2,127 in taxes.
- So, adding $987.50 to $2,127, John might owe about $3,114 in taxes, rather than the $3,312 he would owe if his entire taxable income were evaluated at the 12% rate.