Federal Income Tax Brackets

The U.S. imposes a tax on income using progressive rates, so a person's tax liabilities gradually increases as their income increases. There are seven marginal tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These rates are imposed by Congress and found in section one of the Internal Revenue Code. The income that these rates apply to adjusts every year and the IRS updates the official tax rates to take into account inflation.

Marginal tax brackets refer to the tax imposed on the next dollar earned, which is a useful concept for tax planning because it enables people to analyze the tax impact of additional income or deductions. The marginal tax bracket is the highest tax rate imposed on your income. Ordinary income tax rates apply to most kinds of income, and they are distinguished from the capital gains tax rate imposed on long-term gains and qualified dividends.

The tax rates are displayed by year and filing status below:

Tax Tables for Tax Year 2019 (Filed in 2020)

Tax Tables for Tax Year 2020 (Filed in 2021)

The Hidden 0% Tax Bracket

Everyone is entitled to a standard deduction or itemized deductions and one or more personal exemptions. Together, these constitute a 0% tax bracket, in the sense that there's no tax imposed on the income represented by these deductible expenses.

Progressive Structure of the Tax Rates

The ordinary income tax rates are called progressive because the tax rate that applies progressively increases as a person's income increases. For example, someone with $1 million in income would have their income taxed at every tax bracket. Progressive tax rates are distinguished from a flat tax, where there's one tax rate that applies to all income, and regressive tax rates, in which tax rates decrease as income increases.

Average Tax Rates vs. Marginal Tax Rates

Marginal tax rates don't tell the full story when it comes to tax planning; a person's average tax rate should be considered because it's a person's total federal tax liability divided by their total income. Average tax rates indicate, on average, what the federal government taxes on a person's income. To find your average tax rate, take your total federal tax liability and divide it by your taxable income.