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401k HSA IRA Taxes

Federal Income Tax Brackets

Tax Year 2020 Federal Income Tax Brackets (Due April 2021)

Tax rateSingleMFJMFSHead
10%$0 to $9,875$0 to $19,750$0 to $9,875$0 to $14,100
12%$9,876 to $40,125$19,751 to $80,250$9,876 to $40,125$14,101 to $53,700
22%$40,126 to $85,525$80,251 to $171,050$40,126 to $85,525$53,701 to $85,500
24%$85,526 to $163,300$171,051 to $326,600$85,526 to $163,300$85,501 to $163,300
32%$163,301 to $207,350$326,601 to $414,700$163,301 to $207,350$163,301 to $207,350
35%$207,351 to $518,400$414,701 to $622,050$207,351 to $311,025$207,351 to $518,400
37%$518,401 or more$622,051 or more$311,026 or more$518,401 or more
  • MFJ stands for Married Filing Jointly
  • MFS stands for Married filing separately
  • Head stands for Head of household

Tax Year 2019 Federal Income Tax Brackets (Due July 2020)

Tax rateSingleMFJMFSHead
10%$0 to $9,700$0 to $19,400$0 to $9,700$0 to $13,850
12%$9,701 to $39,475$19,401 to $78,950$9,701 to $39,475$13,851 to $52,850
22%$39,476 to $84,200$78,951 to $168,400$39,476 to $84,200$52,851 to $84,200
24%$84,201 to $160,725$168,401 to $321,450$84,201 to $160,725$84,201 to $160,700
32%$160,726 to $204,100$321,451 to $408,200$160,726 to $204,100$160,701 to $204,100
35%$204,101 to $510,300$408,201 to $612,350$204,101 to $306,175$204,101 to $510,300
37%$510,301 or more$612,351 or more$306,176 or more$510,301 or more

Tax Year 2018 Federal Income Tax Brackets

Tax rateSingleMFJMFSHead
10%$0 to $9,525$0 to $19,050$0 to $9,525$0 to $13,600
12%$9,526 to $38,700$19,051 to $77,400$9,526 to $38,700$13,601 to $51,800
22%$38,701 to $82,500$77,401 to $165,000$38,701 to $82,500$51,801 to $82,500
24%$82,501 to $157,500$165,001 to $315,000$82,501 to $157,500$82,501 to $157,500
32%$157,501 to $200,000$315,001 to $400,000$157,501 to $200,000$157,501 to $200,000
35%$200,001 to $500,000$400,001 to $600,000$200,001 to $300,000$200,001 to $500,000
37%$500,001 or more$600,001 or more$300,001 or more$500,001 or more

How do Tax Brackets work for Singles

The first mistake – do not think if you are in a 25% tax bracket that you would have to pay 25% on all of your income!

Let’s say your taxable income is 60,000

NOTE that your taxable income is calculated after all the tax deductions.

So your actual earned income would be higher than 60,000.

Now, this $60,000 is taxed in different chunks:

  • First, $9,875 is taxed at a 10% rate – the lowest tax bracket!
  • Then up to $40,125 is taxed at 12% rate – the next one higher….GOT IT?
  • Then the last remaining amount until $60,000 is taxed at 22%
    • Since 22% is your higher tax rate — it is also referred to as your marginal tax bracket!

How do Tax Brackets work for Married, filing jointly

Let’s say your and your spouse’s taxable income is $110,000.

NOTE that your taxable income is calculated after all the tax deductions.

So your actual total earned income would be higher than $110,000.

Now, this $110,000 is taxed in different chunks:

  • First, $19,750 is taxed at a 10% rate – the lowest tax bracket!
  • Then up to $80,250 is taxed at 12% rate – the next one higher….GOT IT?
  • Then the last remaining amount until $110,000 is taxed at 22%
    • Since 22% is your higher tax rate — it is also referred to as your marginal tax bracket!

So how to lower taxable income – DEDUCTIONS

When I first heard of deduction (2006) I got them confused with a tax credit which is different. A tax credit reduces your total tax due.

Tax deductions are used to reduce your taxable income. It could be your standard deduction which has gotten bigger after 2018 tax law changes or it could be your 401K contribution deduction, your HSA contribution deduction.

Here are the three of most popular tax deductions:

401K Contribution: This is the granddaddy of all deductions! in 2020 limits are $19,500 per person. But the good news (if you are over 50) is you can contribute up to $26,000 – bad news you are over 50! BTW if you own a small business or are a high earning employee there is a neat little trick with which you (along with your employer) can deduct up to $57,000! Now if you do between both spouses we are looking at $114,000 of employee contributions. So people who are really minting money can still save a lot of money on taxes.

Health Savings Account (HSA) Contribution: For 2020 you contribute up to 3,550 if you are single or $7100 if you have a family HSA. Of course, you need to have an HSA eligible plan either from your employer or from your own.

HSA holders 55 and older get to save an extra $1,000. If both spouses are older than Age 55 means you can essentially save money on $9100 of your income!

IRA contribution: If you are eligible to contribute to an IRA then you can deduct it. Note that IRA has income limits so be careful. IRA you can contribute $6000 if you under age 50 and 7000 if you are 50 or over.

There are several other ones like:

  • Student Loan interest
  • Charitable Donations
  • Medical Expenses (only if greater than 7.5% of your AGI)
  • State and Local taxes (up to 10K of MFJ and 5K for singles)
  • Mortgage interest
  • Gambling Loss 🙂
  • Self-employment expenses
  • Home Office
  • Educator Expense

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