The tax process is always changing, making it essential to stay up-to-date on the latest regulatory shifts. Failing to do so could mean improperly claiming and filing your taxes when the time comes, after all, which might create an auditing and financial nightmare.
The Internal Revenue Service (IRS) recently announced its adjustments for the new tax year, and that contained changes to the 2021 tax tables. Understanding these changes and what they mean for you can make a huge difference in your stress levels when it’s time to submit your tax 2021 return — especially after a year as difficult to navigate as 2020.
This guide will walk you through everything you need to know about the 2021 tax tables, what they are, how to read them, and how to avoid common errors associated with them.
What Are IRS Tax Tables?
An IRS tax table is a chart that displays the amount of tax due based on an individual’s received income. The tax rate in the table is shown as a percentage, a distinct amount, or a combination of the two. These tax tables are often used by estates, companies, and individuals to determine their capital gains and standard income.
Generally, an IRS tax table will:
Why and How Do IRS Tax Tables Change?
Taxpayers with higher income will have higher federal income tax rates, while those with lower income will have lower federal income tax rates. Either way, you can end up in one of seven federal income tax brackets, each with its own marginal tax rate.
You should never get too comfortable with the tax bracket you are in, however. The IRS regularly changes them to account for inflation as well as reduce “bracket creep,” which occurs when a taxpayer gets pushed into a higher tax bracket because of inflation — not because they earned more income.
This means your chance of getting bumped into a higher tax bracket grows every year, making closely following the IRS’s inflation adjustment announcements important. In addition to this, presidential elections and shifting political power often have a significant effect on IRS tax tables.
How to Read 2021 Tax Tables
Step 1: Figure Out Your Filing Status
Step 2: Calculate Your Taxable Income
Step 3: Discover Your Income Bracket
Once you find the appropriate tax table for the year you are filing, you need to find the income bracket that contains your taxable income.
Step 4: Figure Out Your Tax Filing Status
Step 5: Calculate the Amount of Taxes you Owe
Common Pitfalls When Reading the Tax Tables
As a taxpayer, you need to understand not only how the tax table works but also some common mistakes people make when reading the tax table. This can help ensure error- and delay-free returns, which helps taxpayers make the most of their savings.
Some of the most common pitfalls taxpayers experience when reading IRS tax tables include the following:
1. Selecting the incorrect filing status
2. Selecting the wrong number
If you select the wrong number from the 2021 tax table or fail to look at the column that applies to you it can become problematic. Double or triple check that you’re reading the right one for your situation to avoid huge issues on your return.
3. Using gross income instead of taxable income.
Be sure to consult a tax professional if you have questions about determining your taxable income. If you are handling this process yourself, you need to be extremely careful when reading these tax tables. Many times these common errors can delay your processing and significantly hold up your refund. That is why it may be more beneficial to work with tax experts.
Getting the Help You Need with IRS 2021 Tax Tables
These IRS tax tables are often confusing and tedious, but working with qualified tax professionals means you do not have to tackle these complexities on your own.
The experts at Silver Tax Group can speak with you about any 2021 tax table questions you may have and provide you the information you need to know. Contact us today to get started.