Update: The deadline for filing taxes will be pushed to July 15, 2020 from April 15, 2020 due to the Covid-19 outbreak. The IRS is also giving individuals who owe money on their 2019 tax returns until July 15, 2020 to make those payments. The IRS urges people who are owed a refund to file as soon as they can. Find out more here.
The only thing people hate may hate more than paying taxes is keeping up with changes to tax laws.
And as it turns out, the IRS has just released the inflation adjustments to existing tax brackets for 2020, along with other tweaks to next year’s taxes. These changes follow the sweeping changes to tax laws in 2018 and will apply to the income you earn in 2020.
So you’ll need to know this breakdown for filing time in 2021. Read on to find out more.
Like last year, there are seven tax brackets, and the tax rate, or the percentage at which income in these brackets is taxed, also remains the same. However, the income levels for each bracket have changed slightly, to adjust for increases to the cost of living. The standard deduction has also gone up for both single filers and married people who file jointly. The standard deduction is the flat deduction amount you get if you don’t itemize your taxes.
Whether you’re filing individually or jointly, you can see which bracket applies to you below:
2020 Federal Income Tax Rates, Unmarried Individuals
|up to $9,875||10%|
|Over $9,875 to $40,125||12%|
|Over $40,125 to $85,525||22%|
|Over $85,525 to $163,300||24%|
|Over $163,000 to $207,350||32%|
|Over $207,350 to $518,400||35%|
2020 Federal Income Tax Rates, Married Filing Jointly
|Up to $19,750||10%|
|Over $19,750 to $80,250||12%|
|Over $80,250 to $171,050||22%|
|Over $171,050 to $326,600||24%|
|Over $326,600 to $414,700||32%|
|Over $414,700 to $622,050||35%|
(You can find how the 2020 tax rates compare to those for 2019 here.)
What else has changed?
- The standard deduction went up this year. If you’re filing individually, the standard deduction is $12,400, an increase of $200. If you’re married and filing jointly, the standard deduction increased by $400 to $24,800.
- The annual contribution limit for 401(k) and 403(b) retirement accounts also increased by $500 to $19,500.
How do I figure out my tax bracket?
Remember, though, that while you’ll pay more taxes as your income increases, you don’t pay the full tax amount on your income based on your bracket. For example, if your adjusted gross income (the income you claim after deductions) is $50,000 annually and you’re filing individually, your income would be taxed as follows:
- The first $9,875 will be taxed at 10%
- The income between $9,876 and $40,125 will be taxed at 12%
- And finally, the income from $40,126 to $50,000 will be taxed at a 22% rate.
Whether you file your own taxes or outsource the job to a tax professional, it’s important to stay informed as tax laws change so you know what’s happening to your hard-earned money.