What tax bracket are you in? One of the biggest mistakes people make is assuming that all their income is taxed at the same rate. However, that’s not the case. In actuality, your income is divided into chunks based on your filing status and each portion is taxed at the corresponding rate. The seven federal tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%. The idea is that the more money you earn, the more you’re supposed to pay in taxes.
2020 tax brackets (for taxes due April 2021)
Here are the current tax brackets. Keep in mind, this only applies to your federal return. Your state may have different brackets or no taxes at all.
|Tax Rate||Single||Head of Household||Married Filing Jointly||Married Filing Separately|
|10%||$0 to $9,875||$0 to $14,100||$0 to $19,750||$0 to $9,875|
|12%||$9,876 to $40,125||$14,101 to $53,700||$19,751 to $80,250||$9,876 to $40,125|
|22%||$40,126 to $85,525||$53,701 to $85,500||$80,251 to $171,050||$40,126 to $85,525|
|24%||$85,526 to $163,300||$85,501 to $163,300||$171,051 to $326,600||$85,526 to $163,300|
|32%||$163,301 to $207,350||$163,301 to $207,350||$326,601 to $414,700||$163,301 to $207,350|
|35%||$207,351 to $518,400||$207,351 to $518,400||$414,701 to $622,050||$207,351 to $311,025|
|37%||$518,401 or more||$518,401 or more||$622,051 or more||$311,026 or more|
How to get into a lower tax bracket
Getting into a lower tax bracket is important if you want to pay less taxes and possibly bring home a bigger refund. There are two tricks you can use to save money; you can claim a tax credit or a tax deduction.
Tax credits reduce the amount of taxes you owe. In some cases, it can even produce a refund. The IRS offers numerous credits, but the Earned Income Tax Credit (EITC) and Child Tax Credit are two of the most popular options. The EITC is a benefit designed to help low to moderate income workers. It is potentially worth up to $6,660. If you have a dependent who is 16 or younger at the end of 2020, you can also claim the Child Tax Credit and qualify for a maximum of $2,000 per child. Up to $1,400 of the credit is refundable. This means if your tax bill is reduced to zero, you can receive the remaining portion of the credit as a refund.
Tax deductions work differently. Your deductions are subtracted from your income before your tax bill is calculated. If you itemize, you can deduct things like your medical and dental expenses, student loan interest and charitable contributions. However, most people prefer to just take the standard deduction because it’s easier. For 2020, the standard deduction is $12,400 for single filers, $18,650 for head of household and $24,800 for married couples filing jointly. When you file with ezTaxReturn, we compare your standard versus itemized deductions and let you choose the one that saves you the most money. So, you get the biggest possible refund. Pre-register now and we’ll give you a special discount when you try our service next year. There’s no cost and no obligation.