If you want to keep more of your money come tax time, knowing which tax bracket you’re in is critical.
Your status and tax bracket affect more than just your IRS bill in April. It can have significant implications for your student loans as well. And of course, knowing your federal income tax rate is essential to completing your taxes correctly and getting the deductions you deserve.
Here’s what you need to know about the federal income tax rates for filing your taxes in 2019.
What are federal tax brackets?
The income brackets and tax rates can change every year, so it’s a good idea to review them annually.
The IRS taxes different portions of your income at different rates depending on how much you make each year. If you have a higher income, you’ll pay a higher rate.
For the taxes you’ll file in 2019, the tax structure and income brackets have changed dramatically, thanks to a massive tax overhaul passed by the government last year.
The structure of seven tax brackets remain unchanged, but five brackets have now decreased:
|2017 tax year||2018 tax year|
Because your bracket depends on your income, keep in mind that income requirements for each bracket also shifted for 2019.
Federal income tax rates for 2019 filing
In the fall of the tax year, the IRS releases annual inflation adjustments, particularly those that affect the tax brackets.
Here are the most recent brackets:
|Tax Rate||Single||Married (joint)/Widow(er)||Married (separate)||Head of Household|
|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|
How tax brackets work
The IRS doesn’t tax your income at one flat rate. Instead, you’ll be taxed at one rate up until the bracket limit, then any income after that is taxed according to the next bracket, and so on. The marginal rates only apply to slices of your income, rather than the whole chunk. The rate you pay on that last slice of your income is the one generally referred to as “your” tax bracket.
For example, if you made $10,000 and are single, you’d pay a 10% tax rate on $9,700 of your income. The remaining $300 would be taxed at the next rate, 12%. Because you paid 12% on the last part of your income, that’s your tax bracket.
The progressive tax system means that everyone pays the same rates on the same income, but the rates get higher as your income increases over certain thresholds.
Thankfully, you don’t have to do the math on your own. Your tax preparation software or tax preparer will do that for you. If you want to figure out your tax bracket ahead of time, you can also use the TurboTax bracket calculator.
Federal tax brackets and financial aid
The federal tax rate can affect your school financial aid as well, since how you pay for school can change how much you pay in taxes.
Grants and scholarships
If you receive scholarships or grants, such as Pell Grants, they are considered tax-free income as long as you spend the money on essential expenses such as tuition, fees and school supplies. The Pell Grant, for instance, won’t boost your income or affect your income tax bracket.
However, many people use scholarships and grants for other education-related expenses, such as room and board. That’s completely acceptable, but if used that way, the Pell Grant is taxable as income. If you received thousands in aid, that could push you into a higher tax bracket, and you’ll owe more money at tax time.
Because federal student loans are borrowed money that you have to pay back, the student loans you receive for the school year are not taxable as income, regardless of how you use them.
If you are entered a work-study program to offset college costs, the IRS generally views your work as a regular part-time job. That means any money you earn from a work-study job can be taxed as income and could potentially change your federal income tax bracket.
Loans discharged through Public Service Loan Forgiveness (PSLF) are not taxable as income, so you don’t have to worry about any tax-bracket changes in this case.
However, it’s very different for those who pursue Income-Driven Repayment (IDR) plans and loan forgiveness. Under IDR plans, the government will discharge the remainder of your loans after 20 to 25 years of making payments. But unlike PSLF, the amount that they discharge is taxable as income, which could result in a massive tax bill, depending on your income and the amount of the loan balance forgiven.
For example, if you took out the average student loan debt of $29,800, were single and had an income of $20,000, you would be eligible for several IDR plans. If you chose Pay as You Earn (PAYE), you would make 240 payments before your loans would be discharged. About $52,756 would be forgiven, according to our PAYE calculator.
Having more than $50,000 in debt disappear overnight sounds amazing. But that means you will have a huge tax bill in April because that forgiven amount is now taxable income.
The forgiven amount would be tacked onto your salary for the tax year, lifting you into a higher tax bracket and very likely erasing any hope of a tax refund.
How deductions affect your federal income tax brackets
Before you get depressed because a higher tax bracket is eating more of your income, keep in mind that you can also take advantage of deductions from your taxable income.
If you qualify for the student loan interest deduction, for instance, you can take off as much as $2,500 from your taxable income.
Let’s say you’re single, you make $40,000, and you don’t have any deductions, putting you in the 22% federal tax bracket. If you claimed the full student loan interest deduction, you could deduct $2,500 from your taxable income. That means your taxable income would drop to $37,500, placing you in the 12% tax bracket instead of the 22% bracket.
Deductions can dramatically reduce your tax bill, so keep an eye out for any you might qualify for.
Understanding your federal income tax rate
Although federal tax brackets can be confusing, knowing your tax rate will help you prepare for tax time. Understanding what counts as income, and what you can deduct, can change your bracket and lower your tax bill.
Andrew Pentis contributed to this report.