Use the Federal Income Tax Brackets to See What You Really Owe

It’s that time of year again when our minds start turning towards what taxes we will owe come April. Federal income tax brackets are one of the critical pieces of the tax code.

These tax brackets were created to facilitate the taxing of different levels of income. Below you will find the tax brackets for income earned in 2019 and 2018 (as well as past years).

Our progressive tax rate structure (i.e. as income increases, taxes increase) requires that we define the starting and stopping points for the application of different rates.

Tax Brackets: A Quick History

The first federal income tax brackets came into effect in the United States back in 1913, when the income tax became a permanent fixture in our government.

The initial tax brackets, although very simple and low, were not unlike our current set of tax brackets. The initial rates ranged from 1 – 7% and were applied to incomes from $0 to $500,000 plus.

It wasn’t until the 1940s that we saw the first unique tax bracket created for single filers and those married filing separately.

Over the years the federal income tax has grown to as many as 50 different brackets, based on income. And rates on top earners grew to a massive 94% on incomes above $200,000.

Thankfully, in the late 1980s, much was done to simplify the tax bracket structure. Since then, we’ve settled in on anywhere from 5 to 7 rates across various incomes.

It should be noted that the income is based on taxable income (this number on line 43 of the Form 1040) and the income ranges vary from year to year based on inflation.

Nearly Half Don’t Pay an Income Tax

Many people fork over a fourth of their paycheck each week to the federal government for income taxes. It’s not fun to give up this money knowing that others aren’t paying the same percentage.

The government does provide some benefit, but if everyone isn’t contributing then that can’t be perceived as fair, right? According to data from the Tax Policy Center, more than 76 million or 44.4% of Americans didn’t pay any federal income tax in 2018. This number is up from 72.6 million people or 43.7% in 2017.

There are certainly people in this country that should be exempt from paying taxes, but almost half is ridiculous. Surely some of those people are earning a decent living. How are they able to escape paying income taxes?

Like many people, I feel like we need a simple solution to collecting revenue and that everyone should pay something. I would be in favor of some type of national sales tax or flat income tax. Anything to wipe the slate clean and just start over.

We have a mess of a tax code that makes it costly to file, enforce, and collect. I’m not sure we’ll ever see it happen though.

Related: What If You Can’t Pay Your Taxes This Year?

What are the 2019 Income Tax Brackets?

The changes for the 2019 federal income tax brackets were increases in the cut off to account for inflation.

The table below shows the tax brackets for each income level for both single filers and those married and filing jointly.

2019 Federal Income Tax Brackets

Tax RateMarried Filing JointlyMost Single Filers
10%$0-$19,400$0-$9,700
12%$19,401 - $78,950$9,701 - $39,475
22%$78,951 - $168,400$39,476 - $84,200
24%$168,401 - $321,450$84,201 - $160,725
32%$321,451 - $408,201$160,726 - $204,100
35%$408,201 - $612,350$204,101 - $510,300
37%$612,351+$510,301+

2018 Federal Income Tax Brackets

Here’s what you will owe on the income you earned in 2018.

Tax RateMarried Filing JointlyMost Single Filers
10%$0-$19,050$0-$9,525
12%$19,051-$77,400$9,526-$38,700
22%$77,401-$165,000$38,701-$82,500
24%$165,001-$315,000$82,501-$157,500
32%$315,001-$400,000$157,501-$200,000
35%$400,001-$600,000$200,001-$300,000
37%$600,001+$300,001+

Use the Tax Brackets to Plan

If you are doing your tax planning, you should look at the tax brackets to help you in your calculations. With a little bit of foresight, you might be able to reduce your tax burden in the current year or defer it to the next, depending on what your desires are.

Related: 7 Strategies to Save You Thousands Each Year in Taxes (Year-End Tax Planning)

Here we have all the tax brackets back to 2010 so you can compare and see how your income taxes may change year over year. It’s also interesting to review them and note how tax liability has changed over the years. Click to show

Determine Your Tax Bracket

You may be wondering “what is my tax bracket?” That’s a great question to ask because it shows you are curious about how much of your earnings are going to the U.S. government to pay for the protection and services that they provide.

Related: File Your Taxes at Home with Expert Help [TurboTax Live Review]

As taxpayers, we sometimes fall asleep at the tax-paying wheel and don’t pay attention to our taxes paid because they are taken out of our paychecks without much fuss. Knowing your tax bracket will help you make educated decisions about money moves that will affect the taxes you pay at the end of the year.

What are Progressive Taxes and How Do They Work?

Your federal income tax bracket is the rate at which your highest level of income is taxed. This rate is called your marginal tax rate.

Your marginal rate doesn’t mean that you pay that exact percentage across all of your income. It just means that you are paying that amount on your highest level of income.

Related: Where to Get Your Taxes Done in 2019 (The 3 Best Places & Prices)

Therefore, if you are a single filer and are in the 24% tax bracket, you don’t pay 24% of your income in taxes. You just pay 24% on everything over $82,501.

Another personal rate you might want to know is your effective tax rate. You calculate this by dividing your total tax by your taxable income.

Pull out last years return and see what you get. Someone in the 24% federal income tax bracket could have an effective tax rate as low as 13%.

What is Adjusted Gross Income?

It’s important to know your adjusted gross income (AGI) because many tax rules and privileges are based on it. To get your adjusted gross income, you start with your gross income then make any adjustments.

Related: What is the Minimum Income to File Taxes in 2019?

Take that number and subtract your exemptions and deductions to arrive at your taxable income. Here are a couple of equations to help you visualize the explanations above:

Gross Income – Adjustments = Adjusted Gross Income (AGI)

Adjusted Gross Income (AGI) – Exemptions – Deductions = Taxable Income

AGI is used on your tax return for a variety of purposes such as determining eligibility for certain deductions. The lower the AGI, the greater the deductions and credits for which you will be eligible.

Don’t confuse AGI with MAGI (modified adjusted gross income). To calculate the MAGI, you need to take your AGI and add back in certain items such as foreign earned income, foreign-housing deductions, student loan deductions, tax-exempt interest, the excluded portion of Social Security benefits, etc.

The Internal Revenue Service (IRS) uses an individual’s MAGI include to determine how much of that person’s IRA contribution is deductible and whether an individual is eligible for premium tax credits.

How to Get Into a Lower Tax Bracket

The two most common ways to reduce your tax burden include credits and deductions.

  • Tax credits reduce the amount of taxes you owe dollar for dollar. They don’t have an effect on your tax bracket.
  • Tax deductions, however, do have an impact on your tax bracket. They reduce how much of your income is taxed by lowering your taxable income. This, in turn, could kick you into a lower tax bracket, which means you pay a lower tax rate.

It’s important to reiterate that being in a tax bracket does not mean that’s the rate you pay on everything you earn. Don’t make the mistake of using your highest bracket for planning purposes. Doing so can lead you to overpay your taxes and extend an interest-free loan to the government.

Related: 9 Badass States Without State Income Taxes (and How They Get Away with It)

The Bottom Line

Learning the basics of the tax code and understanding how tax brackets work will help you when preparing your taxes. It can also help you make a plan for next year’s taxes on how you can lower your tax burden by contributing to tax-advantaged accounts.

Keep in mind that the tax information above only applies to federal taxes. Each state has its own set of laws and regulations that govern how residents are taxed. If you’re lucky to live in one of the states that don’t have a state income tax, you’ll only have to worry about the federal tax brackets listed above.

If you have any questions about your tax return or how your taxes are calculated, consult with a qualified tax professional. Make sure you have a basic understanding of what goes into your taxes so you can ensure you’re getting all of the credits and deductions to which you’re entitled.

Have you started planning for next year’s tax return? How have the tax bracket changes affected you? Share in the comments.

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About Philip Taylor, CPA

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon. He created this website back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence. He uses Personal Capital to track his wealth. All the content on this blog is original and created or edited by PT.

Comments

  1. Came here from Kiplinger. Very helpful site!

  2. It’s amazing how many people don’t understand the progressive tax structure and believe all their income is taxed at the highest rate. Nice post.

  3. Just stumbled onto this site somehow. Read several of the articles, all great. PT, you’re doing a great job here and better yet a great “FREE service to many who really need it….

  4. That is a good question which can’t be answered quickly. But most tax software, like TurboTax will help you determine which one. Still, it makes for a good post idea.

  5. File Federal Tax says

    I like your article but i don’t have any idea about federal tax 1040, 1040e and 1040ez. I am single person so which is the best option for tax filing online for me?

  6. Pretty vital information for someone who does not know about taxation. People charge for sharing this information and you are giving it free. Great Job.