With a third of the 2020 tax year behind us, the Internal Revenue Service (IRS) has finally released the 2020 tax brackets. While it might seem a little late in the year, you still have plenty of time to make adjustments to your tax planning strategy.
Before getting to the actual changes within the tax brackets, it’s worth noting that the effective tax rates have not changed. There will still be 7 brackets with the effective tax rates set as follows: 10%, 12%, 22%, 24%, 32%, 35% and 37%. What did change was the wage ranges that are applicable to each bracket.
How Tax Brackets are Defined Each Year
While you might presume setting the annual tax brackets requires a lot of work, the process is actually easy and efficient.
For the most part, the IRS starts with the tax brackets from the prior. They then take those brackets and adjust them upwards based on the current “inflation rate index.” The inflation rate index for 2020 is 1.8%.
2019 Tax Brackets
As a reminder, we wanted to lay out the tax brackets from 2019. They are only applicable to 2019. Since the filing deadline was extended to July 15 due to the Coronavirus pandemic, you might have recently seen these numbers. Here are the 2019 brackets:
Single/Married Filing Separately:
- Tax Rate: 10% / Bracket: $0 to $9,700
- Tax Rate: 12% / Bracket: $9,701 to $39,475
- Tax Rate: 22% / Bracket: $39,476 to $84,200
- Tax Rate: 24% / Bracket: $84,201 to $160,725
- Tax Rate: 32% / Bracket: $160,726 to $204,100
- Tax Rate: 35% / Bracket: $204,101 to $510,300
- Tax Rate: 37% / Bracket: Over $510,300
Married Filing Jointly:
- Tax Rate: 10% / Bracket: $0 to $19,400
- Tax Rate: 12% / Bracket: $19,401 to $78,950
- Tax Rate: 22% / Bracket: $78,951 to $168,400
- Tax Rate: 24% / Bracket: $168,401 to $321,450
- Tax Rate: 32% / Bracket: $160,726 to $204,100
- Tax Rate: 35% / Bracket: $408,201 to $612,350
- Tax Rate: 37% / Bracket: Over $612,350
Head of Household:
- Tax Rate: 10% / Bracket: $0 to $13,850
- Tax Rate: 12% / Bracket: $13,851 to $52,850
- Tax Rate: 22% / Bracket: $52,851 to $84,200
- Tax Rate: 24% / Bracket: $84,201 to $160,700
- Tax Rate: 32% / Bracket: $160,701 to $204,100
- Tax Rate: 35% / Bracket: $204,101 to $510,300
- Tax Rate: 37% / Bracket: over $510,301
2020 Tax Brackets
Here are the new tax brakets for 2020:
Single/Married Filing Separately:
- Tax Rate: 10% / Bracket: $0 and $9,875
- Tax Rate: 12% / Bracket: $9,875 and $40,125
- Tax Rate: 22% / Bracket: $40,125 and $85,525
- Tax Rate: 24% / Bracket: $85,525 and $163,300
- Tax Rate: 32% / Bracket: $163,300 and $207,350
- Tax Rate: 35% / Bracket: $207,350 and $518,400
- Tax Rate: 37% / Bracket: Over $518,400
Married Filing Jointly:
- Tax Rate: 10% / Bracket: $0 and $19,750
- Tax Rate: 12% / Bracket: $19,750 and $80,250
- Tax Rate: 22% / Bracket: $80,250 and $171,050
- Tax Rate: 24% / Bracket: $171,050 and $326,600
- Tax Rate: 32% / Bracket: $326,600 and $414,700
- Tax Rate: 35% / Bracket: $414,700 and $622,050
- Tax Rate: 37% / Bracket: Over $622,050
Head of Household:
- Tax Rate: 10% / Bracket: $0 and $14,100
- Tax Rate: 12% / Bracket: $14,100 and $53,700
- Tax Rate: 22% / Bracket: $53,700 and $85,500
- Tax Rate: 24% / Bracket: $85,500 and $163,300
- Tax Rate: 32% / Bracket: $163,300 and $207,350
- Tax Rate: 35% / Bracket: $207,350 and $518,400
- Tax Rate: 37% / Bracket: over $518,400