2021 Federal Income Tax Brackets

The IRS adjusted more than 60 tax provisions for 2021 annual inflation adjustments. These adjustments are generally used on tax returns filed on 2022. 

2021 IRS Tax Brackets and Rates

(for taxes due in April 2022)

2021 Single Tax Brackets

Taxable income is:
Over -
But not over - The tax is
USD 0USD 9,95010%
USD 9,950USD 40,525USD 995.00 + 12%
USD 40,525USD 86,375USD 4,664.00 + 22%
USD 86,375USD 164,925USD 14,751.00 + 24%
USD 164,925USD 209,425USD 33,603.00 + 32%
USD 209,425USD 523,600USD 47,843.00 + 35%
USD 523,600. . . . . .USD 157,804.25 + 37%

2021 Married Filing Jointly Tax Brackets

Taxable income is:
Over -
But not over - The tax is
USD 0USD 19,90010%
USD 19,900USD 81,050USD 1,990.00 + 12%
USD 81,050USD 172,750USD 9,328.00 + 22%
USD 172,750USD 329,850USD 29,502.00 + 24%
USD 329,850USD 418,850USD 67,206.00 + 32%
USD 418,850USD 628,300USD 95,686.00 + 35%
USD 628,300. . . . . .USD 168,993.50 + 37%

2021 Married Filing Separately Tax Brackets

Taxable income is:
Over -
But not over - The tax is
USD 0USD 9,95010%
USD 9,950USD 40,525USD 995.00 + 12%
USD 40,525USD 86,375USD 4,664.00 + 22%
USD 86,375USD 164,925USD 14,751.00 + 24%
USD 164,925USD 209,425USD 33,603.00 + 32%
USD 209,425USD 314,150USD 47,843.00 + 35%
USD 314,150. . . . . .USD 84,496.75 + 37%

2021 Head of Household Tax Brackets

Taxable income is:
Over -
But not over - The tax is
USD 0USD 14,20010%
USD 14,200USD 54,200USD 1,420.00 + 12%
USD 54,200USD 86,350USD 6,220.00 + 22%
USD 86,350USD 164,900USD 13,293.00 + 24%
USD 164,900USD 209,400USD 32,145.00 + 32%
USD 209,400USD 523,600USD 46,385.00 + 35%
USD 523,600. . . . . .USD 156,355.00 + 37%

How to Calculate Tax Due and Effective Tax Rate?

Let’s assume that your taxable income (after USD 25,100 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 19,950, the 12% tax rate on taxable income between USD 19,900 and USD 81,050, and 22% on the part of your taxable income over USD 81,050.

Here are our calculations;

USD 84,000 – USD 81,050 = USD 2,950

USD 2,950 x 22% = USD 649

USD 9,328 + USD 649 = USD 9,977 → total tax due

USD 9,977 / (USD 84,000 + USD 25,100)= 9,14% → effective tax rate

2021 Standard Deduction

Filing StatusDeduction Amount
Single or Married filing separatelyUSD 12,550
Married filing jointly or Qualifying widow(er)USD 25,100
Head of householdUSD 18,800

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.

2021 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.  

2021 Alternative Minimum Tax Exemption

Filing StatusExemption Amount
Single or Head of householdUSD 73,600
Married filing jointly or Qualifying widow(er)USD 114,600
Married filing separatelyUSD 57,300

2021 Alternative Minimum Tax Brackets

Filing Status26% AMT Tax Rate28% AMT Tax Rate
Married filing separatelyAMTI up to USD 99,950excess AMTI of USD 99,950
All other filersAMTI up to USD 199,900excess AMTI of USD 199,900

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.

2021 Alternative Minimum Tax Exemption Phaseout Thresholds

Filing StatusThreshold
Married filing jointlyUSD 1,047,200
All other filersUSD 523,600

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 25,100 + USD 50,000 = USD 159,100 → Alternative minimum taxable income

USD 159,100 – USD 114,600 = USD 44,500

USD 44,500 x 26% = USD 11,570 → alternative minimum tax, which is higher than regular tax amount of USD 9,977 (calculated above)

Therefore, the taxpayer needs to pay additional USD 1,593 with alternative minimum tax.

2021 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 40,400
USD 0 to
USD 80,800
USD 0 to
USD 40,000
USD 0 to
USD 54,100
15%USD 40,401 to
USD 445,850
USD 80,801 to
USD 501,600
USD 40,401 to
USD 250,800
USD 54,101 to
USD 473,750
20%USD 445,851
or more
USD 501,601 or
more
USD 250,801 or
more
USD 473,751 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

2021 Gift Tax Exclusion and Estate Tax Exemption

For 2021, the annual gift tax exclusion to gifts to each donee is USD 15,000.

The estate tax exemption is USD 11,700,000 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.

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.