Federal Income Tax Brackets 2021

Federal Income Tax Brackets 2021 and Tax Estimator

Federal Income Tax Brackets 2021 for the tax for taxes due in April 2022 or in October 2022 with an extension. There are 7 tax brackets and 7 tax rates for each type of filing status.

Understanding these tax brackets and tax rates will help you easily define your tax liability or refund for the financial year 2021.

What are Tax Brackets?

Every year, IRS announces multiple tax brackets based on which a US citizen or alien pays his income tax. Tax Brackets are multiple ranges of taxable income on which the tax rates are applicable and the filer calculates the income tax.

Tax Brackets for Single, Married Filing Separately, Married Filing Jointly and Head of House Hold are different.

What Are Tax Rates?

Tax Rates means the percentage on which IRS charges the income tax for different filing status. Different Tax Rates apply to different income categories.

Individuals having lower taxable income has to pay income tax on lower tax rates. The lowest tax rate is 10% and the highest tax rate is 37%.

What is Taxable Income?

The formula to calculate Taxable Income is as follows:

Taxable Income = Gross Income – Adjustments – Deductions – Exemptions

Gross Income

Gross income includes income from the following sources:

  • Wages
  • Dividends
  • Capital gains
  • Business income
  • Retirement distributions
  • Interest or returns from Investment
  • Other income from side hustles

Adjustments to Derive Adjusted Gross Income (AGI)

IRS allows some initial deductions to adjustments your income. The income after deduction of adjustments is called Adjusted Gross Income or AGI.

Adjustments include the following:

  • Educator expenses.
  • IRA deduction.
  • Student loan interest deduction.
  • Tuition and fees deduction.
  • Health savings account deduction.
  • Moving expenses.
  • 50% of self-employment tax.
  • Self-employed Health Insurance Deduction.
  • Other Self-Employed Plans (SEP, SIMPLE, etc).
  • Penalties paid for early withdrawal of savings.
  • Alimony paid.

Deductions

There are two types of deductions: Standard Deductions and Itemized Deductions. The taxpayer can choose between the both. Usually, filers having low income opt for Standard Deductions as it allows them to get more deductions.

Standard Deduction for Federal Income Tax 2021:

Single Filer: $12,550.

Married Filing Jointly: $25,100.

Head of Household: $18,800.

Married Filing Separately: $12,550.

Itemized Deductions are a sort of Allowable Deduction in the federal income tax system that considers actual costs rather than a predetermined amount of the Standard Deduction.

Itemized Deductions for Federal Income Tax 2021:

  • Medical and dental expenses, as well as some medical insurance premiums, surpass 10% of your AGI
  • State and Local Income Taxes.
  • Local and State Sales Taxes
  • Property taxes on real estate.
  • Personal Property Taxes are a type of property tax that is imposed on individuals. (For example, automobile registration fees)
  • Mortgage interest rates.
  • Interest on investments is paid. (For example, margin interest)
  • Donations to Charities and Churches in Cash
  • Losses incurred as a result of a catastrophe or theft.
  • Employee costs that are not repaid by your employer.
  • Tax preparation fees paid.
  • Gaming losses are proportional to gambling wins.

Every year there is a limit for itemized deductions. But due to COVID-19, there are no limitations to itemized deductions.

Exemptions

Tax exemptions are a type of deduction that the IRS provides to all federal income tax filers. These tax exemptions, like allowable deductions, lower your taxable income.

Taxpayers sometimes overlook these tax exemptions and end up paying extra taxes. Knowing about these exemptions might help you lower your tax bill.

Every year, the IRS adjusts the tax exemption amount for inflation. On their tax returns, every taxpayer has the right to seek an exemption.

Federal Income Tax Brackets 2021

Given below are the Federal Income Tax Brackets as well as Tax Rates for the year 2021 based on the filing status.

Federal Income Tax Brackets 2021 For Single Filers

Tax rate 2021

Taxable Income Brackets 2021

Tax Liability 2021

10%

$0 to $9,950

10% of taxable income between $0 to $9,950

12%

$9,951 to $40,525

$995 + 12% of the amount above $9,950 upto $40,525

22%

$40,526 to $86,375

$4,664 + 22% of the amount above $40,525 upto $86,375

24%

$86,376 to $164,925

$14,751 + 24% of the amount above $86,375 upto $164,925

32%

$164,926 to $209,425

$33,603 + 32% of the amount above $164,925 upto $209,425

35%

$209,426 to $523,600

$47,843 + 35% of the amount abover $209,425 upto $523,600

37%

$523,601 or more

$157,804.25 + 37% of the amount above $523,600

Federal Income Tax Brackets 2021 For Married Filing Separately

Tax rate 2021

Taxable Income Brackets 2021 Tax Liability 2021

10%

$0 to $9,950 10% of taxable income between $0 to $9,950

12%

$9,951 to $40,525 $995 + 12% of the amount above $9,950 upto $40,525

22%

$40,526 to $86,375 $4,664 + 22% of the amount above $40,525 upto $86,375

24%

$86,376 to $164,925 $14,751 + 24% of the amount above $86,375 upto $164,925

32%

$164,926 to $209,425 $33,603 + 32% of the amount above $164,925 upto $209,425

35%

$209,426 to $314,150 $47,843 + 35% of the amount abover $209,425 upto $314,150

37%

$314,150 or more $86,496.75 + 37% of the amount above $314,150

Federal Income Tax Brackets 2021 For Married Filing Jointly

Tax rate 2021

Taxable income bracket 2021

Tax Liability 2021

10%

$0 to $19,900

10% of taxable income

12%

$19,901 to $81,050

$1,990 + 12% of the amount above $19,900

22%

$81,051 to $172,750

$9,328 + 22% of the amount above $81,050

24%

$172,751 to $329,850

$29,502 + 24% of the amount above $172,750

32%

$329,851 to $418,850

$67,206 + 32% of the amount above $329,850

35%

$418,851 to $628,300

$95,686 + 35% of the amount above $418,850

37%

$628,301 or more

$168,993.50 + 37% of the amount above $628,300

Federal Income Tax Brackets 2021 For Head of the Household

Tax rate 2021

Taxable income bracket 2021 Tax Liability 2021

10%

$0 to $14,200

10% of taxable income

12%

$14,201 to $54,200

$1,420 + 12% of the amount above $14,200

22%

$54,201 to $86,350

$6,220 + 22% of the amount above $54,200

24%

$86,351 to $164,900

$13,293 + 24% of the amount above $86,350

32%

$164,901 to $209,400

$32,145 + 32% of the amount above $164,900

35%

$209,401 to $523,600

$46,385 + 35% of the amount above $209,400

37%

$523,601 or more

$156,355 + 37% of the amount above $523,600

Source: www.IRS.gov

Tax Credits 2021

Once you have calculated your taxable income and applicable tax liability you can reduce the amount by taking available tax credits by the IRS.

These include:

  • Adoption Tax Credit
  • Child Tax Credit
  • Earned Income Credit
  • Education Credits
  • Foreign Tax Credit
  • Credit for Child and Dependent care expenses
  • Credit for Elderly and Disabled.

Additional Credits for Federal Income Tax 2021 Due To COVID-19

Here are a few exclusive credits available in 2021.

Recovery Rebate Credit

Recovery Rebate Credit is a program that IRS introduces in 2021 for people who either partially received the 3rd EIP or stimulus payment or did not receive it at all. Therefore, such individuals can claim any missing amounts from the third EIP through the Recovery Rebate Credit (RRC).

In simple terms, if you didn’t receive the full amount of the 3rd Economic Impact Payment, you could be entitled to the 2021 Recovery Rebate Credit.

We have created a Recovery Rebate Credit Calculator with predefined formulas and functions. This template helps calculate RRC for the tax year 2021.

Recovery Rebate Credit 2021 Worksheet

Click on the link below to download the template:

Recovery Rebate Credit 2021 Worksheet

Employee Retention Credit

In the past 2 years, businesses had to mandatorily shut down operations during COVID-19. As a result, the US government introduced Coronavirus Aid, Relief, and Economic Security Act hereafter referred to as CARES Act.

The CARES Act consists of a business relief provision known as the Employee Retention Credit (ERC). This credit entitles the businesses to a refundable payroll tax credit for qualified wages paid to retained full-time employees.

The ERC’s objective is to motivate firms to retain employees on the payroll even if they are unable to work due to the consequences of the coronavirus outbreak within the covered period.

ERC is a completely refundable credit that applies to the employee’s Social Security taxes. This implies that the credit will be treated as an overpayment, and you will get a refund after deducting your portion of the taxes.

In other words, if your credit in any quarter exceeds your entire Social Security liability, the difference will be repaid to you.

To claim the new Employee Retention Credit (if eligible), total qualifying salaries and related health insurance expenditures for each quarter must be calculated and subtracted from your Form 941.

We have created an Employee Retention Credit Calculator with predefined formulas and functions. This template helps calculate ERC for each quarter of 2021.

Employee Retention Credit Calculator

Click on the link below to download the template:

Employee Retention Credit Calculator 2021

Frequently Asked Questions

How IRS applies the tax rates?

IRS Calculates Tax Liability or Income Tax on a marginal basis. This means that the difference of taxable income above your tax bracket will be charged with the preceding tax bracket.

For example, if your taxable income is $48,000 and you are a single filer, then a 12% tax rate is applicable on $40,525 and a 22% on $7,475 ($48,000 - $40,525).

Therefore, your tax liability will be:

$4,664 + $1,644.50 = $6,308.5

The same formula applies to individuals with filing status Married Filing Separately, Married Filing Jointly, and Head of Household.

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Disclaimer: This article is for educational purposes only and shall not be considered as tax advice. Kindly consult a CPA or tax consultant.

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