Marginal Income Tax Brackets

Find Your IRS Tax Brackets and Tax Rates

Many people do not understand their marginal income tax bracket and how it affects them. In turn, they can end up making financial decisions that are actually less beneficial in the long run. Here’s what you need to know about marginal tax brackets.

One of the most common misconceptions is that moving into a higher tax bracket (e.g., from a salary increase) means that all of your income will be subject to a higher tax rate. But this is actually untrue. For example, if you move from the 22% tax bracket to the 24% tax bracket, only the money that you earn within the 24% bracket is taxed at that rate.

RELATED: Common Tax Questions & Answers

The marginal income tax rate system is known as a “gradual tax schedule.” That basically means: as you make more money, you pay more tax. Your marginal tax bracket is the highest tax rate that you will pay on your income.

For tax year 2021, there are 7 marginal income tax brackets for each filing status:
10%, 12%, 22%, 24%, 32%, 35%, and 37%

2021 Income Tax Rates

Listed below are the 2021 individual income tax rates, organized by federal filing status.

Single

Taxable Income	Tax Rate
$0 – $9,950	10% of taxable income
$9,951 – $40,525	$995 plus 12% of the amount over $9,950
$40,526 – $86,375	$4,664 plus 22% of the amount over $40,525
$86,376 – $164,925	$14,751 plus 24% of the amount over $86,375
$164,926 – $209,425	$33,603 plus 32% of the amount over $164,925
$209,426 – $523,600	$47,843 plus 35% of the amount over $209,425
$523,601 or more	$157,804.25 plus 37% of the amount over $523,600

 

Married Filing Jointly or Qualifying Widow(er)

Taxable Income	Tax Rate
$0 – $19,900	10% of taxable income
$19,901 – $81,050	$1,990 plus 12% of the amount over $19,900
$81,051 – $172,750	$9,328 plus 22% of the amount over $81,050
$172,751 – $329,850	$29,502 plus 24% of the amount over $172,750
$329,851 – $418,850	$67,206 plus 32% of the amount over $329,850
$418,851 – $628,300	$95,686 plus 35% of the amount over $418,850
$628,301 or more	$168,993.50 plus 37% of the amount over $628,300

 

Married Filing Separately

Taxable Income	Tax Rate
$0 – $9,950	10% of taxable income
$9,951 – $40,525	$995 plus 12% of the amount over $9,950
$40,526 – $86,375	$4,664 plus 22% of the amount over $40,525
$86,376 – $164,925	$14,751 plus 24% of the amount over $86,375
$164,926 – $209,425	$33,603 plus 32% of the amount over $164,925
$209,426 – $314,150	$47,843 plus 35% of the amount over $209,425
$314,151 or more	$157,804.25 plus 37% of the amount over $314,150

 

Head of Household

Taxable Income	Tax Rate
$0 – $14,200	10% of taxable income
$14,201 – $54,200	$1,420 plus 12% of the amount over $14,200
$54,201 – $86,350	$6,220 plus 22% of the amount over $54,200
$86,351 – $164,900	$13,293 plus 24% of the amount over $86,350
$164,901 – $209,400	$32,145 plus 32% of the amount over $164,900
$209,401 – $523,600	$46,385 plus 35% of the amount over $209,400
$523,601 or more	$156,355 plus 37% of the amount over $523,600

RELATED: Get Ready to File Your 2021 Tax Return

Understanding Marginal Tax Brackets

The marginal tax bracket system is a gradual tax schedule, which essentially means the more you earn, the more tax you pay. The amount of taxable income that you earn determines which tax bracket(s) you fall into. While it is the goal of many taxpayers to keep their income in the lower tax bracket, remember that the gradual tax schedule ensures that not all of your income is taxed at a higher rate.

The structure of federal income tax brackets was first implemented by the IRS in the early 1900s in an attempt to create a progressive tax system that would demand less from lower-income individuals. This system, plus a series of tax credits and tax deductions, have allowed nearly half of Americans to avoid owing federal income tax altogether [Source: The Tax Foundation].

If you understand marginal income tax brackets and how they work, you can use this knowledge to help save money on your income taxes. If you are close to one of the marginal tax bracket limits, you can actually avoid moving into the next tier by controlling the amount of income that you earn. However, it’s recommended that you run the numbers and consider your particular situation before implementing a specific tax strategy, because owing less tax means earning less income.

In order to properly file your federal income tax return and pay any tax that you owe, it is necessary to understand your income tax bracket, your filing status, and which income tax rate(s) apply to you.

RELATED: How to Determine Your Income Tax Bracket

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