2020-2021 Federal Income Tax Brackets

The U.S. imposes an income tax using progressive rates. An individual's tax liability gradually increases as their income increases. There are seven marginal tax rates or brackets as of 2021: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income that these rates apply to adjusts every year to take inflation into account.

Marginal Tax Brackets

Ordinary income tax rates apply to most kinds of income, and they're distinguished from the capital gains tax rate that's imposed on long-term gains and qualified dividends. Your marginal tax bracket is the highest tax rate imposed on your income. Marginal tax brackets refer to the tax imposed on the next dollar earned.

Tax rates are defined by year and by filing status:

Tax Tables for Tax Year 2020 (Filed in 2021)

These tax rates were in effect for income earned from Jan. 1 through Dec. 31, 2020.

Tax Tables for Tax Year 2021 (Filed in 2022)

These tax rates are in effect for income earned from January 1 through December 31, 2021.

The "Hidden" 0% Tax Bracket

Every taxpayer is entitled to claim a standard deduction or to itemize their deductions. These deductions effectively constitute a 0% tax bracket, in the sense that there's no tax imposed on income represented by these deductible expenses. They're subtracted from gross income to arrive at the income levels referenced in the federal tax brackets cited above.

Progressive Structure of the Tax Rates

U.S. tax rates are referred to as "progressive," because the tax rate that applies increases incrementally as an individual's income increases. For example, someone with $1 million in income would have their income taxed at every tax bracket. Someone with $5,000 in income after deductions would be taxed only at the 10% bracket.

Average Tax Rates vs. Marginal Tax Rates

Marginal tax rates don't tell the full story when it comes to tax planning. An individual's average rate, referred to as the "effective tax rate," should be considered, because that is their total federal tax liability divided by their total income. Effective tax rates indicate what the federal government taxes on someone's income.