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Does taking deductions (either the standard deduction or regular deductions) change the tax bracket that will determine how much taxes we have to pay?

Does taking deductions (either the standard deduction or regular deductions) change the tax bracket that will determine how much someone someone has to pay? For example, in 2021 the 12% tax bracket for a married couple is up to $81,050. Anything over that becomes the 22% tax bracket. Let's say a couple makes $83,000 in one year, which would put them in the 22% tax bracket. Does the standard deduction of $25,100, lower the amount they have to pay taxes on to $57,900? Is that then based on the 12% tax bracket or the 22% tax bracket?

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2 Replies

Does taking deductions (either the standard deduction or regular deductions) change the tax bracket that will determine how much taxes we have to pay?

The tax brackets are used on your taxable income.  This is your Adjusted Gross Income minus the Standard Deduction (or Itemized Deduction if greater)

If your taxable income in 2021 would be $57,900 then your tax bracket would be 12%.  The first $19,900 would be taxed at 10% and the amount greater than $19,900 would be taxed at 12%.

Does taking deductions (either the standard deduction or regular deductions) change the tax bracket that will determine how much taxes we have to pay?

Any deduction that reduces your taxable income may reduce your tax bracket; that includes not only the standard deduction or schedule A itemized deductions, but certain other less common deductions.

 

However, your entire income is never taxed at the highest bracket.  Suppose you are married filing jointly and your gross taxable income is $110,000.  After the $25,100 standard deduction, your taxable income would be $84,900.   However, this is not taxed at 22%.  Instead, the first $19,900 is taxed at 10%, the next $61,150 is taxed at 12%, and only the amount over $81,050 ($3850 in my example) is taxed at 22%.

 

In other words, you are never in a situation where a small raise that puts you in a higher bracket subjects all your income to the higher rate, just the amount that is over that threshold.

 

Then of course, your tax will be reduced by any allowable credits, such as for dependents and certain other activities. 

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