IRS Tax Information

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Information on Federal IRS Tax BRackets – 2021

Federal income tax rates are determined by your filing status and your taxable income for the year – your adjusted gross income minus either your standard deduction or allowed itemized deductions. The tax rate increases progressively the more you earn and is divided into income tax brackets. There are seven tax rates ranging from 10% to 37% as of 2020.

It’s important to note you only have to pay the tax rate on the amount your taxable income falls into for each tax bracket. This is what’s known as ‘progressive taxation’ and can confuse a lot of people but an example can help illustrate how this works.

Let’s say your filing status is Head of Household and your taxable income is the median household income (according to a recent report) of $62,116 and you used the 2020 tax brackets and rates.

Here is how your income would be taxed:

The first $14,100 would be taxed at 10%. 
Taxable income from $14,101 to $53,700 would be taxed at 12%.
And the taxable income from $53,701 to $62,116 would be taxed at 22%.

$14,100 taxed at 10% = $1410
$39,599 taxed at 12% = $4751.88
$8415 taxed at 22% = $1851.30

Grand total = $8013.18. That’s $1410 + $4751.88 + $1851.30.  

You would use a total of 3 different rates because your income fell into 3 different tax brackets. You would add them all up to find your total income tax owed. It is a common misunderstanding that all of your taxable income is taxed at the highest rate.

Making just enough to fall into a higher tax bracket means the amount you made just over a bracket will be taxed higher.  So if you made barely over one of the brackets it won’t equate to that much more in your grand total of taxes owed.

Reminder, your taxable income isn’t what you made for the year. Your taxable income is determined by finding your adjusted gross income and then subtracting either the standard deduction or itemized deductions (whichever you go with, whichever is more).

To determine your AGI (adjusted gross income) refer to the official IRS definition.

~ Tax Brackets for 2021 ~
Single / Unmarried Individuals
Taxable IncomeTax Rate
$0 to $9,95010%
$9,950 – $40,525$995 + 12% of the amount over $9,950
$40,525 – $86,375$4,664 + 22% of the amount over $40,525
$86,376 – $164,925$14,751 + 24% of the amount over $86,375
$164,926 – $209,425$33,603 + 32% of the amount over $164,925
$209,426 – $523,600$47,843 + 35% of the amount over $209,425
$523,601 or more$157,804.25 + 37% of the amount over $523,600
Married Filing Jointly or Qualifying Widow/Widower
Taxable IncomeTax Rate
$0 – $19,90010%
$19,901 – $81,050$1,990 + 12% of the amount over $19,900
$81,051 – $172,750$9,328 + 22% of the amount over $81,050
$172,751 – $329,850$29,502 + 24% of the amount over $172,750
$172,751 – $329,850$67,206 + 32% of the amount over $329,850
$418,851 – $628,300$95,686 + 35% of the amount over $418,850
$628,301 or more$168,993.50 + 37% of the amount over $628,300
Married Filing Separately
Taxable IncomeTax Rate
$0 – $9,95010%
$9,951 – $40,525$995 + 12% of the amount over $9,950
$40,526 – $86,375$4,664 + 22% of the amount over $40,525
$86,376 – $164,925$14,751 + 24% of the amount over $86,375
$164,926 – $209,425$33,603 + 32% of the amount over $164,925
$209,426 – $314,150$47,843 + 35% of the amount over $209,425
$314,151 or more$84,496.75 + 37% of the amount over $314,150
Head of Household
Taxable IncomeTax Rate
$0 – $14,20010%
$14,201 – $54,200$1,420 + 12% of the amount over $14,200
$14,201 – $54,200$6,220 + 22% of the amount over $54,200
$86,351 – $164,900$13,293 + 24% of the amount over $86,350
$164,901 – $209,400$32,145 + 32% of the amount over $164,900
$209,401 – $523,600$46,385 + 35% of the amount over $209,400
$523,601 or more$156,355 + 37% of the amount over $523,600

There are no personal exemption amounts for 2021.

Your filing status depends on your personal situation (e.g., whether you are married or have dependents). You should review the available federal filing statuses and choose the one that best fits your situation. If you qualify for more than one filing status, you may select the one that offers you the most tax benefits.

2021 Standard Deduction Amounts

There are two main types of tax deductions: the standard deduction and itemized deductions. The IRS allows you to claim one type of tax deduction, but not both.

Tax deductions lower your taxable income. They are subtracted from your Adjusted Gross Income (AGI).

Here are the 2021 standard deductions amounts for each filing status:

Filing StatusStandard Deduction
Single$12,550
Married Filing Jointly or Qualifying Widow(er)$25,100
Married Filing Separately$12,550
Head of Household$18,800

There is an additional standard deduction of $1,350 for taxpayers who are over age 65 or blind. The amount of the additional standard deduction increases to $1,700 for taxpayers who are unmarried.

Bonus or Supplemental Pay vs Regular Pay

A bonus is a special payment given to someone as a reward for good work or achievement. The bonus is an additional payment to an employee beyond their salary or hourly pay. 

Bonuses are deductible to your business, in the tax category of “payments to employees.”

Bonuses are not considered deductible expenses for sole proprietorships, partnerships, and limited liability companies (LLCs). Owners/partners/members are considered by the IRS to be self-employed.

Employee bonuses are always taxable to employees as an employee benefit, no matter how or when they are paid. Bonus payments are subject to federal income tax, Social Security tax, Medicare tax, and applicable state taxes.

If the employer delivers the bonus as part of the regular paycheck, it will be taxed like regular income. If it’s delivered with a separate check, it’s taxed as supplemental income.

If you pay the employee a bonus in a separate check from their regular pay, you can calculate the federal income tax withholding in one of two different ways:

  • You can withhold a flat 22%.
  • You can add the bonus to the employee’s regular pay and withhold as if the total were a single payment.

It is usually less costly to have the bonus delivered as supplemental income rather than as an amount added to the regular check. However, which approach will result in lower taxes depends on each individual situation.

If you aren’t withholding taxes from the employee’s paycheck (maybe because the employee claims an exemption from withholding), you must add the bonus amount to the employee’s current paycheck and figure the withholding as if the regular paycheck and the bonus amount are one amount.

One of the most effective ways to reduce taxes on a bonus is to reduce your gross income with a contribution to a tax-deferred retirement account. This could be either a 401(k) or an individual retirement account (IRA). The amount you donate to the retirement account, subject to limitations, reduces your taxable income so you’ll owe less.

You can’t get a deduction for a contribution to a Roth IRA.

Retirement Plans for Self-Employed People

Self-employed have many of the same options to save for retirement on a tax-deferred basis as employees participating in company plans. The following information is from the IRS.

Simplified Employee Pension (SEP)

Establish the plan with a simple one-page form:

  1. complete
  2. open a SEP-IRA through a bank or other financial institution.

Set up the SEP plan for a year as late as the due date (including extensions) of your income tax return for that year.

401(k) plan
  • Make annual salary deferrals up to $19,500 in in 2021,  plus an additional $6,500 in 2021 if you’re 50 or older either on a pre-tax basis or as designated Roth contributions.
  • Contribute up to an additional 25% of your net earnings from self-employment for total contributions of $58,000 for 2021 ($57,000 (for 2020 and $56,000 for 2019), including salary deferrals.
  • Tailor your plan to allow access to your account balance through loans and hardship distributions.

A one-participant 401(k) plan is sometimes referred to as a “solo-401(k),” “individual 401(k)” or “uni-401(k).” It is generally the same as other 401(k) plans, but because there are no employees who work for the business, it is exempt from discrimination testing.

Savings Incentive Match Plan for Employees (SIMPLE IRA Plan)

You can put all your net earnings from self-employment in the plan: up to $13,500 in 2021 and in 2020 ($13,000 in 2019), plus an additional $3,000 if you’re 50 or older (in 2015 – 2021), plus either a 2% fixed contribution or a 3% matching contribution.

Establish the plan:

  1. complete
  2. open a SIMPLE IRA through a bank or another financial institution.
    • Set up a SIMPLE IRA plan at any time January 1 through October 1. If you became self-employed after October 1, you can set up a SIMPLE IRA plan for the year as soon as administratively feasible after your business starts.

Learn more:

If you’re covered by a high-deductible health plan, you may be eligible to make a contribution to a health savings account (HSA). These contributions reduce your gross income by the contributed amount. You can also withdraw from an HSA to pay qualified medical expenses without incurring taxes, which makes this one of the most attractive tax-management strategies.

There are limits on how much you can contribute to your HSA. For 2021, the HSA contribution limit is $3,600 for an individual and $7,000 for a family.