2020 Federal Income Tax Brackets

The IRS adjusted more than 60 tax provisions for 2020 annual inflation adjustments. These adjustments are generally used on tax returns filed on 2021. 

2020 IRS Tax Brackets and Rates

(for taxes due in April 2021)

2020 Single Tax Brackets

Taxable income is:
Over -
But not over - The tax is
USD 0USD 9,87510%
USD 9,875USD 40,125USD 987.50 + 12%
USD 40,125USD 85,525USD 4,617.50 + 22%
USD 85,525USD 163,300USD 14,605.50 + 24%
USD 163,300USD 207,350USD 33,271.50 + 32%
USD 207,350USD 518,400USD 47,367.50 + 35%
USD 518,400. . . . . .USD 156,235.00 + 37%

2020 Married Filing Jointly Tax Brackets

Taxable income is:
Over -
But not over - The tax is
USD 0USD 19,75010%
USD 19,750USD 80,250USD 1,975.00 + 12%
USD 80,250USD 171,050USD 9,235.00 + 22%
USD 171,050USD 326,600USD 29,211.00 + 24%
USD 326,600USD 414,700USD 66,543.00 + 32%
USD 414,700USD 622,050USD 94,735.00 + 35%
USD 622,050. . . . . .USD 167,307.50 + 37%

2020 Married Filing Separately Tax Brackets

Taxable income is:
Over -
But not over - The tax is
USD 0USD 9,87510%
USD 9,875USD 40,125USD 987.50 + 12%
USD 40,125USD 85,525USD 4,617.50 + 22%
USD 85,525USD 163,300USD 14,605.50 + 24%
USD 163,300USD 207,350USD 33,271.50 + 32%
USD 207,350USD 311,025USD 47,367.50 + 35%
USD 311,025. . . . . .USD 83,653.75 + 37%

2020 Head of Household Tax Brackets

Taxable income is:
Over -
But not over - The tax is
USD 0USD 14,10010%
USD 14,100USD 53,700USD 1,410.00 + 12%
USD 53,700USD 85,500USD 6,162.00 + 22%
USD 85,500USD 163,300USD 13,158.00 + 24%
USD 163,300USD 207,350USD 31,830.00 + 32%
USD 207,350USD 518,400USD 45,926.00 + 35%
USD 518,400. . . . . .USD 154,793.50 + 37%

How to Calculate Tax Due and Effective Tax Rate?

Let’s assume that your taxable income (after USD 24,800 standard deduction and consider no credits for simplicity) is USD 84,000 and you are filing as married filing jointly. Your marginal tax rate is 22%. Now we will calculate your effective tax rate and the tax due. We will use the 10% tax rate on your income up to USD 19,750, the 12% tax rate on taxable income between USD 19,750 and USD 80,250, and 22% on the part of your taxable income over USD 80,250.

Here are our calculations;

USD 84,000 – USD 80,250 = USD 3,750

USD 3,750 x 22% = USD 825

USD 9,235 + USD 825 = USD 10,060 → total tax due

USD 10,060 / (USD 84,000 + USD 24,800)= 9,25% → effective tax rate

2020 Standard Deduction

Filing StatusDeduction Amount
Single or Married filing separatelyUSD 12,400
Married filing jointly or Qualifying widow(er)USD 24,800
Head of householdUSD 18,650

The standard deduction for people who are over age 65 is USD 14,050 for single taxpayers, and USD 27,400 for married filing jointly taxpayers.

2020 Alternative Minimum Tax (AMT)

The AMT is an additional income tax under the current tax law. The AMT was created in 1969 to ensure that high-income taxpayers could not avoid taxes by using various tax shelters. The AMT adjusts high taxable income of taxpayers by setting limits on certain tax benefits. The taxpayers calculate the tentative minimum tax and the regular tax and are required to pay the excess amount if any.  

2020 Alternative Minimum Tax Exemption

Filing StatusExemption Amount
Single or Head of householdUSD 72,900
Married filing jointly or Qualifying widow(er)USD 113,400
Married filing separatelyUSD 56,700

2020 Alternative Minimum Tax Brackets

Filing Status26% AMT Tax Rate28% AMT Tax Rate
Married filing separatelyAMTI up to USD 98,950excess AMTI of USD 98,950
All other filersAMTI up to USD 197,900excess AMTI of USD 197,900

To avoid a heavy tax burden for low- and middle-income taxpayers, IRS requires taxpayers to calculate alternative minimum taxable income (AMTI) with additional deductions and exemptions to determine the taxable income.

2020 Alternative Minimum Tax Exemption Phaseout Thresholds

Filing StatusThreshold
Married filing jointlyUSD 1,036,800
All other filersUSD 518,400

How to Calculate Alternative Minimum Tax?

Using the same facts above for regular tax calculation, we need to add back standard deduction in our AMT calculation. Assume that the married filing jointly couple has an incentive stock option of USD 50,000.

The calculation is as follows;

USD 84,000 + USD 24,400 + USD 50,000 = USD 158,400 → Alternative minimum taxable income

USD 158,400 – USD 113,400 = USD 45,000

USD 45,000 x 26% = USD 11,700 → alternative minimum tax, which is higher than regular tax amount of USD 10,060 (calculated above)

Therefore, the taxpayer needs to pay additional USD 1,640 with alternative minimum tax.

2020 Long-Term Capital Gains Tax Rate

Long-term
capital gains tax rate
SingleMarried filing
jointly
Married filing
separately
Head of household
0%USD 0 to
USD 40,000
USD 0 to
USD 80,000
USD 0 to
USD 40,000
USD 0 to
USD 53,600
15%USD 40,001 to
USD 441,450
USD 80,001 to
USD 496,600
USD 40,001 to
USD 248,300
USD 53,601 to
USD 469,050
20%USD 441,451
or more
USD 496,601 or
more
USD 248,301 or
more
USD 469,051 or
more

When you hold an asset for one year or less, the capital gain is defined as a short-term capital gain. Short-term capital gains are taxed as ordinary income.

How to Calculate Short- and Long-Term Capital Gains Tax?

Assume that you bought 500 shares of ABC stock at USD 20 per share and sold these shares at USD 25 per share. Your ordinary income is USD 108,400 and filed as married filing jointly.

Note: Ordinary income includes wages, salaries, interests, dividends, bonds (except municipal bonds).

If you hold these stocks less than a year (short-term capital gains tax);

(500 shares x USD 25) – (500 shares x USD 20) = USD 2,500 → capital gain

USD 2,500 x 20% = USD 500 → short-term capital gain tax

If you hold these stocks for more than a year (long-term capital gains tax);

(500 shares x USD 25) – (500 shares x USD 20) = USD 2,500 → capital gain

USD 2,500 x 15% = USD 375 → long-term capital gain tax

2020 Gift Tax Exclusion and Estate Tax Exemption

For 2020, the annual gift tax exclusion to gifts to each donee is USD 15,000.

The estate tax exemption is USD 11,580,000 per decedent.

Buttom Line

While we try to simplify federal income tax brackets for individual taxpayers to figure the tax bill, you also need to consider whole tax forms and instructions for tax credits and deductions to lower your tax bracket.

Author

Covers investment, financial analysis and related financial market issues for BrightHedge. He has extensive experience in portfolio management, business consulting, risk management, and accounting areas.

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Important Information

The investment information, comments and recommendations contained herein are not subject to investment advice. The comments and recommendations contained herein are based on personal views. These views may not fit your financial situation and your risk and return preferences. For this reason, based only on the information contained herein, investment decisions may not have the appropriate outcome.