New tax brackets have been released for income earned in calendar year 2019 for taxes due on April 15th. In 2020 that day falls on Wednesday.
By releasing the tax brackets at this time, the IRS is giving the taxpayers roughly 6 weeks to make last minute adjustments to income and expenditures. It also allows an early peak into what to expect when filing.
Brackets appear to have increased along with the inflation rate (perhaps slightly higher). The brackets tend to expend faster with each consecutive tax bracket. The lowest tax bracket (at 10%) expended by 1.84% across all filing categories; the highest bracket (37%) expended by 2.06%.
Here is a list of this year’s tax brackets; comments follow below:
Because of the progressive nature of the U.S. tax system, the income is taxed at different rates, depending on the bracket is fall into.
For example, a taxpayer filling as “Single” who makes $60,000, will have its income taxes in three different brackets:
In our example, the first 9,700 is taxed at 10%, the next $29,775 (that’s every dollar after $9,700 up to $39,475) is taxed at 12% and finally the remaining amount of $20,525 (every dollar after $39,475 up to the income limit of $60,000) is taxed at 22%.
The final tax amount will determine your effective tax rate. That rate for the taxpayer mentioned above is 15.1% despite the fact that the income falls into different tax brackets.
The above calculations do not factor in any credits and deductions that taxpayers qualify for. Tax credits and deductions are the only legal way to effectively lower your taxable income. Depending on how you generate your income and filing status, different types of credits and deductions are at your disposal. Typically, the more income sources and complexity in your tax returns, the more ways to lower the taxable income (tax base).