Today’s seven tax brackets tax your income between 10% and 37%. Learn about federal tax brackets, marginal income tax rates and how TCJA changed personal income tax.
Individual federal tax brackets assign tax rates to non-business tax filers based on their income levels. The incomes of today’s individual filers fall into seven tax brackets. In 2020, those brackets start at over zero dollars and extend to more than $450,000 in annual income. The marginal tax rates applied to those levels range from 10% to 37%.
A Brief History of Federal Tax Brackets for Individual Income
The most recent change to federal tax brackets occurred after the 2017 Tax Cuts and Jobs Act (TCJA). But it was far from the first time changes were made. Federal income tax brackets have evolved significantly since the initiation of federal income tax in 1861.
Income Taxes Before the 16th Amendment
Tax rates ranged from 3% to 10% between 1862 and 1894, and there were never more than three tax brackets during that period of time. Often, there were only two and sometimes merely a flat rate for every income level.
However, a Supreme Court decision eliminated income taxes in 1895, ruling they were unconstitutional. This situation was reversed in 1913 with the 16th Amendment. That constitutional amendment gave the U.S. Congress the power to collect income tax from citizens for use solely by the federal government.
Tingey Injury Law Firm/UnsplashTax Rates and Federal Tax Brackets Between 1913 and 2018
When income tax collections relaunched in 1913, the government set up seven tax brackets with tax rates between 1% and 7%. Over time, the federal government has established as many as 56 tax brackets. For many years, married couples, single parents and individuals all paid the same tax rates based on their incomes, with no varying filing status. That didn’t change until 1959.
During the next three decades – between 1950 and 1980 – top tax rates remained above 70%. In 1981, that maximum rate was cut to 50% and then to 28% in 1988. The top rate rose again in the 1990s to 39.6%.
In 2003, the tax rate for the highest incomes dropped to 35%, where it stayed until 2013. That year, the American Taxpayer Relief Act boosted the highest rate back to 39.6%. Funding for Obamacare added a 3.8% bump to this rate for many high-income taxpayers.
With the passage of the TCJA, the top tax rate declined to 37%. But that 3.8% Obamacare rate remained, impacting some investment incomes. Regardless, this newest tax law simplified and reduced the personal tax rates of most Americans.
TCJA Changes to the Individual Federal Tax Brackets
There were also seven tax brackets under the American Taxpayer Relief Act of 2012. But only the first one applies the same rate — 10% — to married taxpayers filing jointly and earning up to $19,050 (or single filers making up to $9,525) as does the TCJA.
The former tax law also imposed a 35% tax rate in the 6th bracket. But those income levels had a much smaller income range than TCJA federal tax bracket number 6 for both single filers and married couples filing jointly.
Overall, the TCJA lowered the personal tax rates for most individual taxpayers. For example, if you were married and earned a combined $160,000 annual income with your spouse, your marginal tax was 28% in 2016. In 2019, that same income places you in a 22% marginal tax bracket.
The 2019 tax table chart varies very slightly from the 2018 tax table chart, reflecting the impact that inflation had on incomes. That adjustment changed the income levels in the seven tax brackets, but not the accompanying tax rates.
Charles Deluvio/UnsplashUnderstanding Marginal Income Tax Rates
To understand personal income tax brackets, you need to have a clear understanding of how marginal rates work. These rates operate under a progressive tax system rather than flat rate method. Taxpayers who file without understanding this system may find down the road that the government owes you money.
Essentially, a progressive system taxes your income at various rates that get higher as your income amount rises. That includes unemployment income. So, instead of taxing your entire income at a flat rate, the federal government taxes each bracket amount at the applicable rate.
Marginal Tax Rate Example
As a married person filing jointly with a combined taxable income of $160,000, you’re in the 22% tax bracket. However, you don’t owe a flat 22% rate on the entire $160,000. Instead, three tax rates apply against your income on a progressive scale.
- You owe 10% on the first $19,400 of your taxable income.
- You owe 12% on the taxable amount you made between $19,401 and $78,950 — that’s 12% of $59,550.
- Only on the rest of your taxable earnings in the range between $78,951 and $160,000 — $81,050 — do you owe 22% in taxes.
- Therefore, you owe $26,917 on your $160,000 income. ($1,940 + $7,146 + $17,831). Yet, with a flat tax rate of 22%, the total tax due would be $35,200.
Naturally, this doesn’t take into account deductions, credits and other tax benefit offsets. This example is merely meant to demonstrate how the progressive tax system works.
Omid Armin/UnsplashThe Seven Individual Federal Income Tax Brackets
The following list illustrates the income brackets and accompanying marginal tax rates for the most recent tax filing year.
Single Filing Status
- Bracket 1: 10% — $0 – $9,700
- Bracket 2: 12% — $9,701 – $39,475
- Bracket 3: 22% — $39,476 – $84,200
- Bracket 4: 24% — $84,201 – $160,725
- Bracket 5: 32% — $160,726 – $204,100
- Bracket 6: 35% — $204,101 – $510,300
- Bracket 7: 37% — $510,301 and up
Married Filing Separately Filing Status
- Bracket 1: 10% — $0 – $9,700
- Bracket 2: 12% — $9,701 – $39,475
- Bracket 3: 22% — $39,476 – $84,200
- Bracket 4: 24% — $84,201 – $160,725
- Bracket 5: 32% — $160,726 – $204,100
- Bracket 6: 35% — $204,101 – $306,175
- Bracket 7: 37% — $306,176 and up
Head of Household Filing Status
- Bracket 1: 10% — $0 – $13,850
- Bracket 2: 12% — $13,851 – $52,850
- Bracket 3: 22% — $52,851 – $84,200
- Bracket 4: 24% — $84,201 – $160,700
- Bracket 5: 32% — $160,701 – $204,100
- Bracket 6: 35% — $204,101 – $510,300
- Bracket 7: 37% — $510,301 and up
Married Filing Jointly Filing Status
- Bracket 1: 10% — $0 – $19,400
- Bracket 2: 12% — $19,401 – $78,950
- Bracket 3: 22% — $78,951 – $168,400
- Bracket 4: 24% — $168,401 – $321,450
- Bracket 5: 32% — $321,451 – $408,200
- Bracket 6: 35% — $408,201 – $612,350
- Bracket 7: 37% — $612,351 and up
