The IRS released the 2021 Tax Rate Brackets recently, along with the 2021 Standard Deduction amount and a bunch of other details that your tax man might find interesting. I couldn’t find a side-by-side comparison wi-th 2020, so I decided to create one that I could look at and that will hopefully help you out.
The tax rates themselves are unchanged. They remain at 10, 12, 22, 24, 32, 35, and 37 percent. The income you can earn per each bracket has been raised slightly, on average about 1.0%. This amount is about on par with inflation, which so far in 2020 is 1.2% according to the U.S. Inflation Calculator.
Why do tax rates matter?
If your reading this, you probably already know why they matter, but just thought I’d make sure. These tax rates impact how much you pay to Uncle Sam on the income you earn in 2020 and 2021, respectively. It’s a good idea to note now which bracket your income will likely fall into for next year. This can help with tax planning this year. For example, strategic tax moves you have to make before the end of 2020. It can also help with paying estimated taxes throughout the year if you have your own small business.
These are Federal Tax Rates
Just to make it clear, these are Federal tax rates. State taxes will vary. I live in Texas, a state without state income taxes, so I don’t have to worry about this. The Tax Foundation is a good resource for looking up your state income tax rates. They can be found on their website here.
The Tax Rates
2021 Tax Brackets
2020 Tax Brackets
Side By Side Tax Bracket Comparison
The standard deduction amounts were also released with the tax rates. The “Tax Cuts and Jobs Act” that first went into effect for tax year 2018, and that we first felt when filing in 2019, made the standard deduction a lot more significant. It nearly doubled the amount from what it was previously.
Hope this 2021 – 2020 tax rate bracket comparison helps. While your thinking about saving money for the next tax year, be sure to think about and calculate your net worth as well.