We only have two months left in 2020, but the Internal Revenue Service has already released a breakdown of the new 2021 tax brackets.

Each year, the taxman updates its individual income tax brackets to reflect inflation. There are seven brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%.1

The 2021 tax brackets are marginal, which means that different portions of your income — up to a specified dollar amount — will be taxed at a different rate. These rates are in effect for 2021 and will affect the returns you file for that year in 2022. For 2021, the top tax rate of 37% will apply to individual taxpayers with income over $523,600 ($628,300 for married filing jointly).2

Meanwhile, single filers with income over $209,425 ($418,850 for married filing jointly), will fall into the 35% bracket. The 32% bracket will cover single taxpayers with income exceeding $164,925 ($329,850 for married filing jointly), while the 24% bracket will apply to incomes over $86,375 for singles ($172,750 for married filing jointly).

Single taxpayers with income exceeding $40,525 (or married couples who are over $81,050) will be in the 22% marginal bracket. Meanwhile, the 12% bracket will apply to incomes over $9,950 for single taxpayers ($19,900 for married filing jointly).

The lowest rate is 10%, and it applies to singles with income under $9,950 ($19,900 for married couples). The IRS has also increased the standard deduction for 2021, giving it an inflation boost. The standard deduction is a flat dollar amount that reduces the amount of your income that’s subject to tax.

Next year’s standard deduction for single taxpayers is $12,550, up $150 from 2020′s levels ($25,100 for married couples, reflecting a $300 increase from this year). Heads of households will also enjoy a bump to their standard deduction in 2021: $18,800, up $150 from this year. There is no personal exemption for 2021, as it was eliminated in the Tax Cuts and Jobs Act — the overhaul of the tax code that took place in 2018.

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Sources:

  1. CNBC – Here are the new income tax brackets for 2021
  2. Internal Revenue Service – IRS provides tax inflation adjustments for tax year 2021