Here’s how the 2021 tax brackets actually work

Tax brackets are one of the most misunderstood aspects of taxes in America. Tax reporting often does little to dispel these misunderstandings, sometimes giving the impression that people are going to owe a much larger portion of their income to taxes than they actually do.

Tax brackets aren’t that hard to figure out, especially if you can visualize a tiered water fountain in your head. Let’s dive into it.

Income tax brackets 2021


Taxpayers declaring only one

Married taxpayers declaring jointly



Up to $ 9,950

Up to $ 19,900

A single file taxpayer will only pay 10% of their income up to $ 9,950.


$ 9,951 to $ 40,525

$ 19,901 to $ 81,050

A couple filing jointly will pay 12% tax on income earned between $ 19,901 and $ 81,050, but 10% on the first $ 19,900.


$ 40,526 to $ 86,375

$ 81,051 to $ 172,750

A single-file taxpayer will pay 22% tax per $ 1 earned, starting at $ 40,526.


$ 86,376 to $ 164,925

$ 172,751 to $ 329,850

A couple filing jointly will pay 24% tax on dollars earned between $ 172,751 and $ 329,850.


$ 164,926 to $ 209,425

$ 329,851 to $ 418,850

A person declaring single will pay 32% tax on the income they earn over $ 164,925 and up to $ 209,425.


Over $ 209,425

Over $ 418,850

Taxpayers in this bracket will pay 35% on all income earned above $ 209,425 or $ 418,850 depending on their filing status

Source: Tax Service

Stated this way, the tax brackets are easy to overlook. The most common misconception is that they represent the amount that you will pay out of all of your income. If your total income puts you in a particular tax bracket, it’s not the percentage you pay out of all of your income. It is the amount that you pay only on that part of your income. On the other portions, you will pay a much lower tax rate.

How the 2021 tax brackets work

The best way to visualize tax brackets is to think of a tiered water cooler. There is a small cup at the top where the water begins. It fills this small upper cup, then the water overflows, up to a larger cup. This fills and overflows to the next cup, and so on to a large pool at the bottom.

[ See: 6 Common Tax Misunderstandings, Explained ]

This is almost exactly how tax brackets work.

Imagine that you are a single person and that your income is like water from that fountain. You pour all your taxable income into the top cup of this fountain, the 10% cup. Once you’ve poured $ 9,950, that 10% mug now spills over and the excess flows into the 12% mug. Once you’ve poured $ 40,525 in total, that 12% cup overflows as well, and the excess spills into the 22% cup. Once you pour in $ 86,375 in total, that 22% cup will now also overflow, so the excess will flow into the 24% cup. This continues like this until you have paid $ 209,425 in total, after which any additional income you pay goes into the cup at 35%.

So you end up with your income spread over a bunch of different cups. You have some in the 10% cup, some in the 12% cup, and so on.

For the portion of your money that is in each mug, you only pay the percentage tax rate for that specific mug. If you have $ 9,950 in that 10% cup, you only pay 10% tax on that portion of your income. If you have $ 20,000 in the 12% cut, you pay only 12% income tax on that $ 20,000 portion of your income, and so on.

A concrete example of how tax brackets work

You are a single person who will earn $ 120,000 in income in 2021, but let’s say you have $ 20,000 in deductions, so your taxable income is $ 100,000.

You start to “pour” your income to the top.

  • First, the 10% cut can contain $ 9,950 of your taxable income.
  • Then the 12% cup can hold the rest of your income up to $ 40,525. This is $ 30,575 of your income, or $ 40,525 less the $ 9,950 of the 10% cut.
  • Then the 22% cup can hold the rest of your income up to $ 86,375. That’s $ 45,850 of your income – $ 86,375 minus the $ 9,950 in the 10% cut and $ 30,575 in the 12% cut.
  • Finally, the 24% cut can hold the rest of your income up to $ 164,925. That’s $ 13,625 of your income – $ 100,000 less the $ 9,950 in the 10% cup, $ 30,575 in the 12% cup, and $ 45,850 in the 22% cup.

So here is what you really have to pay:

  • You must pay 10% of $ 9,950 or $ 995.
  • You must also pay 12% of $ 30,575, or $ 3,669.
  • You must also pay 22% of $ 45,850 or $ 10,087.
  • You must also pay 24% of $ 13,625, or $ 3,270.

Add that up and you owe $ 18,021. You pay an overall tax rate of around 15% on your gross income, even if you are in the 24% tax bracket. This is because you are paying a lot less than 24% on most of your income.

For that person, 15% is their effective tax rate and 24% is their marginal tax rate. The effective tax rate is the amount a person actually pays on all of their taxable income, while the marginal tax rate is the tax bracket they are in and how much they should. pay on any additional income.

[ Read: How Donating to Charity Affects Your Taxes ]

This pattern is true for almost all income. People actually pay a much lower percentage of their income than the tax bracket they are in.

What to consider with the 2021 tax brackets

Deductions reduce the amount you owe

If you have tax deductions, that means you’re pouring less money into the fountain to begin with, so you’re actually pouring less into the lower bowl than you can reach.

So, in the example above, if our income of $ 100,000 alone finds $ 5,000 more in deductions, that means he will only have $ 5,000 less in the 24% bowl. They will pay 24% on just $ 8,625 of their income, or $ 2,070. Their tax bill goes down by $ 1,200 because of this additional $ 5,000 deduction. So, tax deductions have a real impact on your tax bill and sometimes can even put you in a lower tax bracket.

You will always have deductions

The IRS always gives you the standard deduction if you don’t have a lot of actual deductions that you can check. In 2021, that means that a single person still gets at least $ 12,550 in deduction, and a married couple filing jointly still gets at least $ 25,100 in deduction.

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So even if you can’t prove anything you can deduct, a single person can still reduce their taxable income by $ 12,550. If you’re single and earn $ 20,000 a year, you get a standard deduction of $ 12,550, which means you’re only taxed on $ 7,450 of your income, which all falls into that bowl of 10. %. Your total income tax bill is $ 745 – 10% of $ 7,450. This person almost certainly gets a refund if they have an employer who took money out of their tax check.

Tax credits are deducted from your tax account at the end

If our $ 100,000 single person had a $ 1,000 tax credit, she calculates her taxes as described above, but then her bill goes from $ 18,021 to $ 17,021. In other words, tax credits are far better than tax deductions. They’re both good, but the credits are great.

[ More: The Simple Guide to Income Tax ]

The easiest way to find all the deductions and credits you’re eligible for is to use the best tax software or hire a trusted tax preparer like H&R Block.

[This article was originally published on The Simple Dollar in November, 2020. It was updated in November, 2021.]

Maria D. Ervin