Income Tax Calculator 2020-2021
The Casaplorer income tax calculator provides an estimate for your 2020 annual income taxes on both a federal and state level. Tax rates are applied marginally, which means you pay different tax rates for each portion of your income. You can use our simple calculator to get an estimate of your income tax liability.
What You Should Know
- Gross income is your unadjusted income that takes into account nearly every source of income in your life.
- Adjusted gross income allows for special types of “above-the-line” adjustments (deductions).
- After applying a federal tax deduction, you get your taxable income, which is the actual figure used by the IRS for federal tax purposes.
- You can either use a standard deduction (a fixed amount shared by all taxpayers determined by the IRS) or an itemized deduction (calculated using any eligible expenditures throughout the tax year).
- You can be taxed at any of the three levels of government (federal, state, and local), but many states omit state and/or local taxes.
- Tax credits are dollar-for-dollar reductions in your income tax liability. Tax refunds are when you have overpaid taxes to the government and the extra amount is returned to you.
Adjusted Gross Income and Taxable Household Income
Adjusted Gross Income: Your adjusted gross income is the portion of your gross income that is subject to state and local taxation. It is calculated by adding all of your taxable income sources and subtracting any “above-the-line” adjustments, explained in the table below. This can be very different from your gross household income, so you should do a formal calculation, but you can start with an estimation. Below is a list of the most common gross income sources and adjustments.
Taxable Income Sources
Salary and wages include much more than people realize. This is by far the largest category when it comes to income taxes and covers any “official” income received through an organization or business. Your employer should provide you with a Form W-2 or Wage and Tax Statement that displays all your income and withholding information. This must be included on your tax return and your partner’s tax return when filing jointly. Salary and Wages include a large variety of different sources of income, but generally, if you receive money, the IRS considers it taxable income. The main sources of income are:
- Pension income
- Leave enchashment
- Income from recognized provident funds (foreign pension funds)
- Contributions to employee pension accounts
- Winnings from lotteries, gambling, races, game shows, etc.
- Income from rental properties
- Profit from a business or profession
- Capital gains on the sale of any capital assets
While you may be under the perception that tips, cash or non-cash, received are non-taxable, the IRS considers tips to be taxable as well. Most often made in the food industry, tips are a large source of income for waiters and waitresses. Your base salary or wage is automatically taxed and your employer will withhold funds that are sent to the IRS. However, it is very difficult for managers to track tips, so you are responsible for reporting your tips to your employer for tax purposes. You can use Form 4070 and your employer will withhold money from your wages to pay taxes. Tips must be reported if they are cash tips of more than $20 per month, any non-cash tips, or tips gained through tip-sharing arrangements like tip pools. The only case where you don’t have to report tips to your manager is if you do not receive $20 in tips for the month per job, but this still must be included on your income tax return.
Interest income is reported on Form 1099-INT or Form 1099-OID and these figures must be included on your federal income tax return even if you do not receive the forms. Nearly all forms of interest income are considered earned income and are taxed normally. This includes interest earned on:
- Deposit accounts
- Account opening gifts
- Certificates of deposit
- U.S. bonds (including municipal bonds)
- Insurance dividends or prepaid insurance gains
- Annuity contracts
- Original issue discounts on long-term debt
- Income tax refunds
Dividends can be taxed as either qualified dividends or nonqualified dividends. Qualified dividends are taxed at a lower rate and include dividends from U.S. companies, U.S.-possessed companies, foreign companies eligible for benefits as part of a U.S. tax treaty, or a company’s stock that is widely available through a major U.S. stock exchange. Additionally, there are holding period requirements that require stock owners to hold the stock for a certain amount of time before receiving the dividend. If the dividend is unqualified, it will be taxed as regular income at the individual’s regular income tax rate.
When you receive alimony payments, you are receiving income, but the IRS does not consider alimony received as part of your gross income. Under previous legislation, if you receive alimony, you would have to pay income taxes. Fortunately, the Tax Cuts and Jobs Act (TCJA) made it so that any alimony received from a divorce finalized on or after January 1, 2019, is not taxed. This includes any divorce agreements modified during this period.
According to the IRS, “Most retirement plan distributions are subject to income tax and may be subject to an additional 10% tax.” You only need to pay this additional 10% tax if you withdraw money before you reach the age of 59.5 (exceptions exist). Otherwise, retirement distributions are considered regular income and must be filed on your tax return.
Unemployment compensation is considered taxable, but some rules may lessen your tax burden. If your adjusted gross income (AGI) is lower than $150,000, you can exclude up to $10,200 from your taxable income. Unemployment compensation considers any amounts received due to laws of the U.S. or laws of your state, which includes:
- State unemployment insurance benefits
- Benefits from the Federal Unemployment Trust Fund
- Railroad unemployment compensation benefits
- Trade readjustment allowances
- Unemployment assistance
- Federal Pandemic Unemployment Compensation (CARES)
- Benefits from a private fund that exceed any amount you voluntarily contributed to the fund
Social Security benefits are only taxable if you have other substantial sources of income as classified by the IRS like wages, self-employment, interest, dividends, etc.
- If you are required to pay this tax - You will be taxed on 85% of the benefits received
- If you file individually and make $25,000 - $34,000 - You pay income tax on 50% of the benefits received
- If you file jointly and make $32,000 - $44,000 - You pay income tax on 50% of the benefits received
401(k) or IRA contributions: With a 401(k) or an IRA, your employee will withhold part of your salary and contribute to your retirement account directly. This means that any contributions to your 401(k) or IRA are not included as part of your taxable income. This is not considered a deduction but rather is directly removed from your gross income. The IRS also offers employees who are saving for their retirement the Saver’s Tax Credit, which is a reduction of your income tax bill. When you make contributions to your 401(k) or IRA, the IRS will match 50%, 20%, or 10%, depending on your income, of the first $2,000 of your contribution as a tax credit, which directly reduces your tax bill. This amount stays at $2,000 for married couples filing jointly. In 2021, the maximum adjusted gross income (after deducting 401(k) or IRA contributions) to be eligible for this program is $66,000 for a married couple filing jointly, $49,500 for a head of household, and $33,000 for an individual or married couple filing separately.
Contributions to a health savings account: A Health Savings Account (HSA) is a specialized savings account for people meant only to cover qualified medical expenses. You must participate in a High-Deductible Health Plan (HDHP) to take advantage of an HSA. In 2021, the maximum contribution to an HSA is $3,600 for individuals or $7,200 for married couples filing jointly. There is also an additional $1,000 for taxpayers aged 55 or older as of the end of the tax year. Much like 401(k) or IRA contributions, HSA contributions are made before your income is considered for taxes, so it is a direct pretax deduction from your income (above-the-line).
- If you use an HSA to pay your medical bills, then you cannot use medical expenses as an itemized tax deduction.
- If you don’t use an HSA to pay your medical bills, you can use them as an itemized tax deduction only if your medical expenses exceed 7.5% of your adjusted gross income.
You can meet this threshold more easily by paying medical bills with your own money in addition to making HSA contributions to increase your eligible medical bills and decrease your AGI.
Charitable donations ($300 limit): If you make a cash contribution to an approved charitable organization, you can make an above-the-line deduction from your gross income of up to $300 as part of the CARES Act. While you can itemize charitable donations for up to 60% of your gross income, the above-the-line deduction can be done without itemizing your deductions. Your charitable donation must be for an approved purpose, which includes:
- Religious centers
- Scientific organizations
- Literary, education
- Animal rights
- Amateur sports
- Non-cash gifts
- Contributions to private foundations
- Donations to supporting organizations (or donor-advised funds)
- Donations to certain organizations (veterans’, fraternities, cemetery companies, burial companies, etc.)
- Contributions made in previous years
Self-employment income: In public companies, employees and employers are responsible for paying half of the total FICA tax each, but self-employed individuals need to pay this tax themselves (15.3%). Fortunately, the IRS allows half of this tax to be considered as “employer” paid, so you can deduct half of the total tax (7.65%) from your gross income. You can also deduct many expenses related to the operation of your business, including home office expenses, vehicle expenses, retirement contributions, education expenses, and interest on business-related loans.
Self-employed health insurance: Under self-employment, expenses related to dental, health, or long-term insurance premiums paid for by you can be tax-deductible given certain conditions. First, you must have positive earned income for the year, so you can’t deduct this expense from your taxes if your businesses generated a loss and you cannot deduct more than your generated income. Next, you must be either a partner or LLC member treated as a partner with a minimum of a 2% share. You are ineligible if you have the opportunity to enroll in another healthcare plan (Eg. under a spouse’s employer). You can also deduct health insurance premiums paid for your employees as part of a sole proprietorship or children under 27 years of age (both dependent and independent).
Jury duty income turned over to an employer: When participating on a jury, it is common for you to receive regular pay or paid leave. You may also receive payment from the court for your service. While both of these are considered part of your taxable income, employers who already pay their employees while on jury duty often require that earnings from the court are given to them. Fortunately, you can claim any amount given to your employer as an above-the-line deduction and reduce your gross income. While on jury duty, you may also receive an allowance for jury-related expenses like parking, transportation, or food. This amount is not considered part of your income and your employer cannot ask you to hand over this amount.
*Alimony Paid: Any alimony paid is still considered part of your gross income and is taxable. Under previous legislation, you could make an above-the-line adjustment for any alimony paid and directly deduct this amount from your gross income. However, the Tax Cuts and Jobs Act (TCJA) implemented new legislation that requires any alimony paid from a divorce finalized on or after January 1, 2019, to be reported as taxable income. This includes any divorce agreements modified after this date.
Qualified educator expenses: As a qualified educator, you are eligible to deduct up to $250 as an individual or $250 per spouse when married filing jointly from your taxable income as an above-the-line adjustment. According to the IRS, this includes any expenses related to the
Early withdrawal penalties: If you incur early withdrawal penalties from a certificate of deposit (CD) or other time-deposit savings account, then you can deduct this amount from your taxable income as an above-the-line adjustment. CD’s have fixed terms, so to encourage individuals from pulling their money out before the CD matures, banks usually impose a set penalty on an early withdrawal. The total penalty amount will be reported on both your Form 1099-INT and Form 1099-OID.
Taxable Household Income: Your taxable household income is the portion of your gross income that is subject to federal taxation. It is calculated by subtracting a standard or itemized tax deduction from your adjusted gross income. While your state and local taxes are calculated using your adjusted gross income, your federal taxes are calculated using your taxable household income.
Tax deductions are eligible amounts that you can use to reduce your taxable income. If you pay state taxes, you may have access to a standard deduction. When filing your federal taxes, you can choose to use a standard deduction or an itemized deduction. To get the maximum benefit from your tax deduction, you should calculate both your standard and itemized deductions, then use the largest one.
A standard deduction is a flat dollar amount you can deduct from your adjusted gross income (state) or taxable income (federal). By reporting a lower income, you can pay fewer taxes on that income.
The standard state tax deduction is the only deduction you can make on your state taxes. There are 32 states with a standard deduction. State tax deductions are only applied to your adjusted gross income to calculate your state taxes., so state taxes are applied to your adjusted gross income minus state tax deductions You cannot use the state tax deduction to calculate your taxable income (federal level) but in many cases, the state tax deduction is the same as the federal tax deduction.
The standard federal tax deduction is used by most taxpayers because it is very simple to calculate. The standard deduction is also very generous because of the Tax Cuts and Jobs Act (TCJA). In many cases, a standard deduction is more beneficial than an itemized deduction.
|Filing Status||Allowed Standard Deduction|
|Head of Household *||$18,650|
|Married or Qualified Widow(er)||$24,800|
|Senior (Age 65+) or Blind||Additional $1,300 for Married or $1,650 for Single|
The itemized deduction is a tax deduction calculated using specific tax-deductible expenses. Calculating this deduction is much more complicated because you must find all eligible deductions and fill out a Schedule A. However, in some cases, you could end up saving more than you would with a standard deduction.
These deductions are split into 6 categories:
- Medical and dental expenses
- State and local taxes (Maximum $10,000)
- Interest expenses (Eg. Mortgage interest)
- Charitable Donations
- Casualty or theft losses
- Other deductions include gambling losses, unrecoverable pension investments, etc.
Components of Income Tax
Federal and most State income taxes use a progressive tax rate, which means your average or effective tax rate will be lower than your marginal tax rate. Your average tax rate is the amount of taxes you pay relative to your total taxable income and your marginal tax rate is the tax rate applicable to an additional dollar on income. Income tax rates are applied at different tax intervals.
Federal Income Tax
The federal income tax applies to any taxable income earned within the United States and ranges between 10% to 37%. As your taxable income increases, the tax rate only increases for the amount of your income that exceeds the next-highest tax bracket depending on your filing status. There is a separate tax schedule for capital gains and dividends. Each year, tax brackets are increased slightly to adjust for inflation.
Federal Income Tax Brackets
|Tax Rate||Single Filers||Married Filing Jointly||Married filing separately||Head of household|
|10%||$0 – $9,950||$0 – $19,900||$0 – $9,950||$0 – $14,200|
|12%||$9,951 – $40,525||$19,901 – $81,050||$9,951 – $40,525||$14,201 – $54,200|
|22%||$40,526 – $86,375||$81,051 – $172,750||$40,526 – $86,375||$54,201 – $86,350|
|24%||$86,376 – $164,925||$172,751 – $329,850||$86,376 – $164,925||$86,351 – $164,900|
|32%||$164,926 – $209,425||$329,851 – $418,850||$164,925 – $209,425||$164,901 – $209,400|
|35%||$209,426 – $523,600||$418,851 – $628,300||$209,426 – $314,150||$209,401 – $523,600|
|37%||$523,601 or more||$628,300 or more||$314,151 or more||$523,601 or more|
History of Federal Income Tax
Tax rates are constantly changing and keeping track of tax changes as they arise keeps you informed about your income. The largest and most recent change to taxes was the Tax Cuts and Jobs Act (TCJA) enacted by President Donald Trump in 2017 and this took effect in the 2018 tax year. It was one of the largest tax changes in the US and affected all individuals and businesses. Tax rates were lowered for all tax brackets, but the 35% tax rate applied to a wider range of income-earners than in 2017. Tax brackets and rates were changed across the board, but you can compare them for yourself using the table below.
|Tax Rate||Single Filers||Married Filing Jointly||Narrued Filing Separately||Head of Household|
There were many notable changes implemented with the TCJA and a few of them are as follows:
- Five out of seven of the tax rates assigned to each tax bracket were reduced by between one and four percent.
- Tax brackets for above-average households were significantly modified
- Personal tax exemptions were eliminated, but standard deductions were increased
- Mortgage interest deductions were capped at a mortgage principal amount of $750,000
- State and local income tax deductions from your federal taxes were capped at $10,000
- The maximum child tax credit was doubled to $2,000 and is now available to high-income households
- Doubled the estate and gift tax exemption ($11.7 million in 2021)
High-Income Earners: The highest tax rate applicable to the richest Americans (income over $523,601 in 2021) has been a point of contention throughout the history of federal taxes. This tax rate doesn’t affect most Americans, but for a small percentage, any difference in this tax rate is very significant. The top tax rate has varied throughout history ranging from 7% in 1913 to 94% during World War II. In the 1980s, the tax rate was reduced to 28% and stayed that way for a while effectively allowing Americans to earn as much as they like. During the 1990s, the top tax rate was increased to 39.6%, which is much closer to today’s top bracket tax rate, but this was reduced to 35% from 2003-2010 until it was returned in 2012. The changes during the past few decades have been much less volatile. However, in 2010, President Barack Obama signed into law the Patient Protection and Affordable Care Act (Obamacare) that increased the top tax rate by a fixed 3.8%. When the top marginal tax rate was once again decreased to 37% in 2018, the addition of the Obamacare tax made the effective top tax rate 40.8%.
State Income Tax
The state income tax applies to any adjusted gross income earned within your state. Most states use a progressive tax rate. However, some states have a fixed tax rate (does not depend on your income) and some states have no state taxes at all.
States with No Income Tax → You will still have to pay the federal income tax.
- New Hampshire
- South Dakota
States with no income tax are not necessarily cheaper to live in. Every state government needs a source of revenue and taxes are their primary source of income. They use these funds for public services like road maintenance, law enforcement, and hospitals. If a state does not charge income taxes, it will probably make up for this deficit with higher sales, excise, or property taxes. For an average resident, this means that the cost of living should remain the same. Of the states that do not charge a tax rate, their average sales tax rate is about 7%, which is over half a percent higher than the average of the remaining states.
No income tax has other implications on the wellbeing of residents as well. If the state government’s revenue is not made up elsewhere, public services may be worse, but government programs that help those in need are worse as well. Income taxes are used as a tool to redistribute wealth from those with an abundance of money to those who need it more. The reason marginal tax rates increase as your income increases is that income taxes are designed to be progressive to help the poor. States that rely on flat sales taxes instead cost low-income earners a larger percentage of their income than high-income earners. The topic of the merits of a state income tax is controversial. Some argue that the nine states without an income tax have outperformed other states on GDP growth, employment growth, and in-state migration, but many others take the side that state income taxes increase economic growth and increase the well-being of the less fortunate. While there is no conclusive evidence for either side because of various variables, a state with no income tax is not necessarily better to live in.
Local Income Tax
Some counties will have an additional income tax that can be applied in many different ways. This includes a flat tax rate on your AGI, a fixed tax amount, a percentage of your state tax liability, or a tax on interest and dividends. Only some municipalities within states have local income taxes, so you may be paying different taxes than someone even in the same state. If you belong to any of these 17 states, you may pay be required to pay a local income tax:
- New Jersey
- New York
- West Virginia
All states listed above also charge a state income tax. For these states, the tax is split up at all three levels because local and state governments use income taxes as a source of revenue. Many local governments use property taxes as their largest source of income while state governments rely on income and sales taxes. Regardless of which level of government you pay income taxes to, your tax dollars are used to fund public services essential to your area.
The Federal Insurance Contributions Act (FICA) is a U.S. law that combines the mandatory social security tax and medicare tax. The social security tax and medicare tax are marginally applied to your adjusted gross income. The social security tax is 6.2% on the first $137,700 of your gross income and 0% for any income above $137,700. The medicare tax is 1.45% on the first $200,000 and 2.35% for any income above $200,000.
For self-employment income, you can deduct half of the total FICA tax (7.65%) when you file your tax return. This is an above-the-line adjustment, which means it applies before your federal income tax deductions.
Certain individuals are eligible for FICA tax exemptions, which include:
- Students employed by their school, college, or university
- Foreign government employees
- International students, scholars, professors, teachers, researchers, physicians, au pairs, summer camp workers, and other aliens
- Certain religious groups (Eg. Amish) → You will be unable to receive Medicare and Social Security Benefits
Earned Income Tax Credits
Tax credits allow you to directly reduce your tax liability. For example, if you owe $500 in income taxes and have a $300 tax credit, you can reduce your income taxes to $200. The Earned Income Tax Credit (EITC) is a tax credit meant to help low-moderate-income workers and families. It is calculated as a fixed percentage of earnings that depends on your income. This tax credit has multiple requirements that include:
- Proof of earned income
- Investment income below $3,650 in the same tax year
- Valid Social Security Number
- Be one of married filing jointly, the head of household, a qualifying widow or widower, or single
- Be a U.S. citizen or resident alien for the full year
The amount you receive may change if you have children or dependents, are disabled, or meet other criteria. For more information, visit the IRS Earned Income Tax Credit (EITC) page.
You will receive a tax refund for overpaying taxes to the federal or state government during the following year. While many taxpayers are happy to receive a tax refund, the money was always yours and you simply gave your money to the government interest-free for some time. If you had submitted your taxes incorrectly, then you could have kept more of your original income and would not need a tax refund. In this case, you should make sure to fill out your Form W-4 correctly and update it regularly. Unfortunately, there are many cases where a tax refund is necessary such as when your actual annual income was lower than expected.
Tax refunds can be given to you in many forms like cheques, government bonds, direct deposits, etc. Generally, you should receive your tax refund within 21 days if your taxes were filed electronically and within 42 days if your taxes were filed on paper, however, there are exceptions where your refund may be delayed. If you owe a federal or state agency, your tax refund may also be used to repay the debt. However, in most cases, you should ensure that you file a federal tax refund and your tax refund is delivered to the correct address. Otherwise, you could lose your tax refund.