Everything You Need To Know About The 2020 Federal Tax Brackets
Tax season is often a stressful and daunting experience for many individuals and families. Every year, the tax code is updated with new laws and regulations, making it difficult to stay on top of the latest changes. In 2020, the federal government has instituted a new set of tax brackets, and understanding them is essential for filing your taxes correctly and reducing your tax liability. Here, we provide a comprehensive guide to the 2020 federal tax brackets and explain how they work.
How Federal Tax Brackets Work
The federal tax brackets are used to determine the amount of taxes you owe on your income. When you file your tax return, you'll need to look up your tax bracket to determine how much you owe. The amount of taxes you owe is based on your income level and filing status. The more you earn, the higher your tax bracket, and the more taxes you owe. This is known as the progressive tax system.
The tax brackets are set up so that those who earn more pay a higher tax rate. This means that the higher your income, the higher your tax rate will be. The tax rate for each bracket is determined by the Internal Revenue Service (IRS). The IRS sets the tax rates for each bracket, and these rates are adjusted annually for inflation.
2020 Federal Tax Brackets
For 2020, the IRS has introduced a new set of tax brackets. The tax brackets are based on your filing status and income level. The tax brackets range from 10% to 37% for individuals and couples filing jointly.
The 2020 tax brackets are as follows:
- 10% - Individuals and couples filing jointly with an income up to $9,875
- 12% - Individuals and couples filing jointly with an income between $9,876 and $40,125
- 22% - Individuals and couples filing jointly with an income between $40,126 and $85,525
- 24% - Individuals and couples filing jointly with an income between $85,526 and $163,300
- 32% - Individuals and couples filing jointly with an income between $163,301 and $207,350
- 35% - Individuals and couples filing jointly with an income between $207,351 and $518,400
- 37% - Individuals and couples filing jointly with an income above $518,400
The tax brackets are the same for both individuals and couples who are filing jointly. However, if you are filing as head of household, the tax brackets are slightly different. Additionally, there are different tax brackets for estates and trusts.
Marginal Tax Rates
In addition to the tax brackets, the IRS also uses marginal tax rates to determine the amount of taxes you owe. Marginal tax rates are the tax rates that apply to the last dollar of your income. The higher your income, the higher your marginal tax rate will be. For example, if you are in the 24% tax bracket, you will be taxed at 24% on the last dollar of your income.
The marginal tax rates for 2020 are as follows:
- 10% - Individuals and couples filing jointly with an income up to $9,875
- 12% - Individuals and couples filing jointly with an income between $9,876 and $40,125
- 22% - Individuals and couples filing jointly with an income between $40,126 and $85,525
- 24% - Individuals and couples filing jointly with an income between $85,526 and $163,300
- 32% - Individuals and couples filing jointly with an income between $163,301 and $207,350
- 35% - Individuals and couples filing jointly with an income between $207,351 and $518,400
- 37% - Individuals and couples filing jointly with an income above $518,400
The marginal tax rates are the same as the tax brackets, except that they apply to the last dollar of your income. This means that if you are in the 24% tax bracket, you will be taxed at 24% on the last dollar of your income.
Tax Credits and Deductions
In addition to the tax brackets and marginal tax rates, the IRS also offers tax credits and deductions that can reduce your tax liability. Tax credits are dollar-for-dollar reductions in the amount of taxes you owe, while deductions reduce your taxable income. For example, if you are eligible for a $1,000 tax credit, your tax liability will be reduced by $1,000.
Tax credits and deductions are available for a wide range of expenses, including student loan interest, mortgage interest, charitable donations, and medical expenses. To take advantage of these credits and deductions, you must itemize your deductions on your tax return. To do this, you'll need to fill out Form 1040 and Schedule A. When you itemize your deductions, you'll be able to claim any credits and deductions that you are eligible for.
Conclusion
The 2020 federal tax brackets are an important part of filing your taxes correctly and reducing your tax liability. Understanding the tax brackets and marginal tax rates is essential for filing your taxes correctly and taking advantage of any tax credits and deductions you are eligible for. By understanding the 2020 federal tax brackets, you can ensure that you file your taxes correctly and reduce your tax liability.