What are the current tax rates?

 

Tax questions often have complex answers. The question of tax rates is no different. When someone asks about the current tax rates, they could be referring to a number of different types of tax rates. Is it the capital gains tax rate, marginal tax rate, or the withholding tax rate on bonuses (what some people think of as a “bonus tax rate”) you’re looking for?

Tax rates on a puzzle piece

Not sure which one? Don’t worry! We’ll outline the types of tax rates and the situations when you’ll encounter them in this post.

Federal income tax rates

First let’s talk about federal income tax rates. Most taxpayers are familiar with this concept — You typically see these percentages represented with a table along with ranges of income. The current federal income tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

To see the 2019 and 2020 tax rates and income ranges, check out this article where we outline what the current tax brackets are.

One note for federal income tax rates is that they apply to ordinary income. Examples of ordinary income include salaries and wages, interest earned, income from self-employment and taxable IRA distributions. Among sources of other income are business income, farm income, rental real estate, alimony, unemployment compensation and nonqualified dividends.

Another callout helpful in explaining federal tax income tax rates is understanding the difference between two terms — marginal tax rate and effective tax rate.

  • Marginal tax rate – This is the tax rate paid on the next dollar of income. The marginal tax rate can be different from one person to the next based on their filing status and the amount of taxable income they have. For example, let’s say you file Single and your taxable income is $50,000. Most of your income would fall in the 0%, 10% and 12% ranges, but the very last of your income would fall in the 22% range. That said, your marginal tax rate would be 22%.
  • Effective tax rate – This is the percentage of total tax paid on all your income. Using the example above, we know not all your income would be taxed at 22%. To calculate your effective tax rate, you’d divide the total amount of tax paid for each income range by the total amount of taxable income.

Want to dig deeper on the math here?  Check out our tax brackets article for a full explanation.

Tax rates for 2019 and 2020: Capital gains tax rates and more

Now, let’s get to the other types of tax rates. There are two places where you might find these categories: either on your bank or investment statements or on your paycheck.

Capital gains tax rate and dividend tax rates

When you receive a monthly bank statement or quarterly investment statement, it may show that you were paid capital gains or dividends. To know what dividend or capital gain tax rate applies here, you should also look at the timeframes involved.

  • Long-term capital gains refer to assets sold for a profit that were held for more than one year. The specific rates depend on your taxable income, but it’s not the same as the percentages listed above. Use the table lower in this section to determine your rate.
  • Short-term capital gains refer to assets sold for a profit that were held for one year or less. These gains are taxed just the same as ordinary income, so you can refer to the federal income tax rates above.
  • Qualified dividend income refers to income held for a certain period. For a dividend to be a qualified dividend, you must have held the asset for more than 60 days during the 121-day period starting 60 days before the ex-dividend date. Qualified dividend income is taxed the same rate as long-term capital gains, so it will also follow the rates shown in the table below.
  • Ordinary dividend income refers to income that doesn’t meet the qualified dividend income criteria above. These dividends, just like short-term capital gains, are taxed as ordinary income.

2019 tax rates: Long-term capital gains (LTCG) and Qualified dividend income (QDI)

LTCG and QDI tax rates Single Married Filing Separately Married Filing Jointly Head of Household
0% Up to $39,375 Up to $39,375 Up to $78,750 Up to $52,750
15% $39,375 to $434,550 $39,375 to $244,425 $78,750 to $488,850 $52,750 to $461,700
20% Above $434,550 Above $244,425 Above $488,850 Above $461,700

 

2020 tax rates: Long-term capital gains (LTCG) and Qualified dividend income (QDI)

LTCG and QDI tax rates Single Married Filing Separately Married Filing Jointly Head of Household
0% Up to $40,000 Up to $40,000 Up to $80,000 Up to $53,600
15% $40,000 to $441,450 $40,000 to $248,300 $80,000 to $496,600 $53,000 to $469,050
20% Above $441,450 Above $248,300 Above $496,600 Above $469,050

 

Note: gains on the sale of collectibles (e.g., antiques, works of art and stamps) are taxed at a maximum rate of 28 percent.

Social Security tax rate, FICA tax rate and Medicare tax rate and bonus tax rate

When you look at your paycheck, you can see taxes that are taken out of your take-home pay for various reasons. We’ll cover those in this section.

Social Security and Medicare taxes fall under the Federal Insurance Contributions Act (FICA) taxes. When you want to know the FICA tax rate, you should refer to the two categories below.

Currently, the:

  • Social Security tax rate is 6.2%. This is for the employee portion of these taxes. Employers also pay half of these taxes, so you can add another 6.2% to get the total Social Security tax rate. Note: a payroll tax deferral may affect these taxes in 2020 and 2021 for some taxpayers.
  • Medicare tax rate is 1.45%.

There are some limits and exceptions to Social Security and Medicare tax rates. Get the details in our payroll tax article.

The last category of taxes you might see on your paycheck stub is for any bonus or supplemental wages you received. The bonus tax withholding rate could apply to prizes and awards, certain commissions, vacation pay, overtime pay, back pay and reported tips to name a few.

The bonus tax withholding rate is a flat 22% as long as the amount paid is under $1 million. If it’s over that amount, the bonus tax rate jumps to 37%. Keep in mind, the FICA taxes mentioned above will also apply to your bonus payment.

What if the bonus tax withholding rate is higher than your income tax bracket? You’ll be able to account for that on your return and possible receive money back as a refund if too much was withheld.

Have questions about tax rates?

If you’re looking to understand how various tax rates will affect your tax filing outcome, check out H&R Block’s income tax calculator so you can plan ahead.

Want help from an expert? The knowledgeable tax pros at H&R Block can help.

 

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