Individual Tax Brackets For The Year 2020-21
Since the whole world deals with the coronavirus pandemic (COVID-19), it’s not really early to look forward to the tax year filing season for 2020, particularly with regard to the impact of current and current rules and regulations about filing taxes in the year 2021.
There are many changes made in legal laws due to coronavirus. The changes in the legislation include new standard deduction amounts, income limit value for tax brackets, particular tax credits, and a rise in retirement savings limits. As well as for the sake of deductions for medical and dental expenses, state and local sales taxes have been kept the same.
Understanding The Individual Tax Brackets For The Year 2020
There exist seven individual tax brackets for the year 2020-21 with the most ordinary income:
- 10 percent
- 12 percent
- 22 percent
- 24 percent
- 32 percent
- 35 percent
- 37 percent
The United States has a progressive tax system, hence as you upgrade the pay scale, you also upgrade the tax scale.
Every Individual’s tax bracket is dependent on its taxable income and its filing status such as :
- Head of the household
- Married filing jointly or Qualifying widow(er)
- Married filing separately
The target date to file taxes each year is the 15th of April except if that date falls on a weekend or national holiday or you get an extension due to some genuine reason, for instance, the extension that the government provided in the year 2020 due to Covid-19 pandemic.
|TAX RATE||FOR SINGLE||HEAD OF HOUSEHOLD||MARRIED FILING JOINTLY OR QUALIFYING WIDOW||MARRIED FILING SEPARATELY|
|1||10%||$0 to $9,875||$0 to $14,100||$0 to $19,750||$0 to $9,875|
|2||12%||$9,876 to $40,125||$14,101 to $53,700||$19,751 to $80,250||$9,876 to $40,125|
|3||22%||$40,126 to $85,525||$53,701 to $85,500||$80,251 to $171,050||$40,126 to $85,525|
|4||24%||$85,526 to $163,300||$85,501 to $163,300||$171,051 to $326,600||$85,526 to $163,300|
|5||32%||$163,301 to $207,350||$163,301 to $207,350||$326,601 to $414,700||$163,301 to $207,350|
|6||35%||$207,351 to $518,400||$207,351 to $518,400||$414,701 to $622,050||$207,351 to $311,025|
|7||37%||$518,401 or more||$518,401 or more||$622,051 or more||$311,026 or more|
For the tax year 2020, the quarterly estimated tax payment is due on or after the 1st of April, 2020, and before the 15th of July 2020, But it can be postponed until the 15th of July 15 without any penalization.
How The Individual Tax Brackets Work For The Year 2020
Imagine you’re head of household and have $200,000 of taxable income in the year 2020. Since $200,000 is in the 32% bracket for the head of household, would your tax bill simply be a flat 32% of $200,000 – or $64,000? Absolutely not. Your tax would actually be below that amount. That’s because, using marginal tax rates, only a portion of your income would be taxed at the 32% rate. The rest of it would be taxed at 10%, 12%, 22%, and 24% rates.
Here’s how it works. Again, assuming you’re head of household with $200,000 taxable income in 2020, the first $14,100 of your income is taxed at the 10% rate for $1410 of tax. The next $39,600 of income (the amount from $14,101 to $53,700) is taxed at the 12% rate for an additional $4,752 of tax. After that, the next $31,800 of your income (from $53,701 to $85,500) is taxed at the 22% rate for $6,996 of tax. After that, the next $77,800 of your income (from $85,501 to $163,300) is taxed at the 24% rate for $18,672 of tax. That leaves only $36,700 of your taxable income (the amount over $163,300) to be taxed at the 32% rate, which comes to an additional $11,744 of tax. When you add it all up, your total 2020 tax is only $43,574. (That’s $20,426 less than if a flat 32% rate was applied to the entire $200,000.)
When 2020 Estimated Tax Payments Due?
Now, suppose you have 100 million dollars. If you’re single, only your 2020 income above $518,400 would be taxed at the top rate of 37%. The rest will be taxed at lower levels rates as above mentioned. So, for instance, the tax on $1 million for a single person in the year 2020 is $334,42700. That’s a lot of money, but it’s still $35,57,300 less than if the 37% rate were implemented as a flat rate on the entire $100 million (which would result in a $370,00,000 tax bill).
Instructions For Getting Into A Lower Tax Bracket
There are fundamentally two ways to acquire a lower tax bracket:
- Tax Credits
- Tax Deductions
Tax credits are a dollar-for-dollar (for each dollar paid to one Party, a dollar shall be paid to the other Party) reduction in your income tax bill. Suppose you have a $3,000 tax bill but are qualified for $500 in tax credits, your bill decreases to $2,500.
Through Tax credits, you can save more in taxes than you can save through deductions. There exist tax credits for several things. The federal government gives tax credits for the cost of purchasing solar panels for your accommodation place and to offset the cost of adoption of a child. There are education tax credits and tax credits for the cost of care of children and dependent care. Several states also provide tax credits.
While tax credits lower your effective tax bill, tax deductions reduce the amount of your income on which you have to pay taxes. If you have enough deductions to exceed the standard deduction for your filing status, you can specify those expenses to lower your income tax For example, if your child care expenses surpass 10 percent of your adjusted gross income in 2021, you can declare those and lower your income tax.