What Are the Federal Tax Brackets for 2020?

No one likes to deal with taxes. They’re confusing, complicated and an overall pain. Sometimes it seems easier to just ignore them.

But if you understand taxes, specifically your tax bracket, you may be more motivated to lower your tax obligation. Knowing which income tax you land in can help you plan ahead to pay fewer taxes.

Learn how tax brackets work and which federal tax bracket applies to you.

How Brackets Work

Taxes are due April 15th every year, but you’re allowed to file as early as late January. Documents should be mailed by January 31, but some companies take longer. You should wait and make sure you’ve received all the necessary tax documents before you file. Otherwise, you may have to submit a correction, which can be a headache.

You don’t have to file taxes if you make less than $12,200, but you may actually end up getting a refund if you do file.

2020 Tax Brackets

There are four categories for filing your taxes: single, married filing separately, married filing jointly, and head of household. Each of these four categories has slightly different 2020 income tax brackets so make sure you’re reading the right column to figure out how you’ll file taxes.

Here are the tax brackets for 2020:

Tax Rate Single Married Filing Jointly Married Filing Separate Head of Household
10% $0 to $9,700 $0 to $19,400 $0 to $9,700 $0 to $13,850
12% $9,701 to $39,475 $19,401 to $78,950 $9,701 to $39,475 $13,851 to $52,850
22% $39,476 to $84,200 $78,951 to $168,400 $39,476 to $84,200 $52,851 to $84,200
24% $84,201 to $160,725 $168,401 to $321,450 $84,201 to $160,725 $84,201 to $160,700
32% $160,726 to $204,100 $321,451 to $408,200 $160,726 to $204,100 $160,01 to $204,100
35% $204,101 to $510,300 $408,201 to $612,350 $204,101 to $306,175 $204,101 to $510,300
37% $510,301 or more $612,351 or more $306,176 or more $510,301 or more

How Income Tax Brackets Work

The U.S. has a progressive tax rate system. A progressive tax means that people who earn more will pay more in taxes, relative to their income. But one common misconception is that people with high incomes pay an overall higher tax rate.

Those who are in the highest brackets don’t pay that tax rate on all of their income, but only the income that falls into that bracket. This means that if you are in the 24% bracket, only the income you make above the 22% bracket $84,200 gets taxed at 24%.

Suppose you’re married and file jointly. Your combined annual income is $106,000. You’d fall into the 22% tax bracket. With the progressive tax rate, the 22% is not applied to your entire income.

You would pay 10% on the first $19,400 you make, then 12% on the income between $19,400 and $78,950. Any income over $78,950 would be taxed at your tax rate of 22%. Your total taxes paid would be $15,037.

If you make $1,000,000 a year, you’d fall into the 37% tax bracket, the highest. But that doesn’t mean you’d pay 37% on all your income. Only the part over $510,301 would.

This is why people are still incentivized to make more money. Even if they jump into the next tax bracket, only a small portion of their income will be taxed at that rate.

The number you use to find your tax bracket isn’t your base salary. It’s your adjusted gross income.

Adjusted Gross Income

Your adjusted gross income (AGI) is one of the most important numbers you need to know. It’s your gross income minus some of your tax deductions and is a measure of how much of your income is actually taxable.

Calculating your AGI is pretty simple. The first step is to add up all of your various income sources including salary, dividends, capital gains, alimony, interest received, rental income, and retirement distributions. Any source of income that you bring in counts towards your gross income.

Then, add up any eligible deductions and any pre-tax retirement contributions you’ve made. These include traditional 401(k) and IRA contributions, 529 contributions, and any tax credits. You’ll subtract those from your total income to get your AGI.

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