Maicher CPA Pllc provides a full range of tax preparation services to help businesses and individuals succeed. There are some key tax terms everyone should know. “Marginal Tax Rate” is one of them because it will help you to properly adjust your withholding taxes, or your tax estimates if you’re self- employed.
What Is Marginal Tax Rate?
Marginal tax rate is the tax rate incurred on each additional dollar of income. The marginal tax rate for an individual will increase as income rises. This method of taxation taxes people based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners. Under a marginal tax rate, taxpayers are usually divided into tax brackets or ranges, which determine the rate applied to the taxpayer’s taxable income — which means income after deductions and exemptions. As income increases, what is earned will be taxed at a higher rate than the first dollar earned.
What Are the Marginal Rates for the 2021 Tax Year?
For tax year 2021, the top tax rate remains 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly). The other rates are:
- 35%, for incomes over $209,425 ($418,850 for married couples filing jointly)
- 32% for incomes over $164,925 ($329,850 for married couples filing jointly)
- 24% for incomes over $86,375 ($172,750 for married couples filing jointly)
- 22% for incomes over $40,525 ($81,050 for married couples filing jointly)
- 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).
Takeaway: Knowing your marginal rates helps you make better decisions about the amount of withholding taxes and estimated payments applicable to you. At Maicher, we provide pro-active and effective tax return services to individuals and businesses. Contact us today for an appointment to discuss your marginal rate and its impact on your tax planning.
IRS Publication – “IRS Provides Tax Inflation Adjustments for Tax Year 2021,” (Last Reviewed/Updated: 26-Oct-2020)
“Your First Look At 2021 Tax Rates: Projected Brackets, Standard Deductions & More,” Forbes (September 11, 2020)