Standard Deduction subtracted before or after tax bracket calculated?

[gmike]

Are the Tax Brackets determined based on gross income (before the Standard Deduction) or the AGI (after the Standard Deduction ($25,100)?

The 2021 Tax Bracket of 12% for Married filing jointly is $19,901 to $81,050. So, as an example, with an income of $100,000 gross, the taxable income would be $74,900 and taxed at 12%. Is this correct?

Does SS income and an unemployment income effect the tax bracket or tax rate for that $74,900 AGI ?

[Hal_Al · Accepted solution]

Q. Is the standard Deduction subtracted before or after tax bracket calculated?

A.  Before.

Taxable income is after adjustments and deductions (standard or itemized). 

[VolvoGirl]

Were you including the SS and unemployment in the 100,000 gross?   They are part of your gross income.

For SS, it's not all taxable.   Up to 85% of Social Security becomes taxable when all your other income plus 1/2 your social security, reaches:

Married Filing Jointly: $32,000

Single or head of household: $25,000

Married Filing Separately: 0

[xmasbaby0]

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2017 that limit was $16,920 —for 2018 it was $17,040—for 2019 it was $17,640— for 2020 it is $18,240; for 2021 it is $18,960)  After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2020 Form 1040

https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.

Some additional information:  There are 13 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.  These states offer varying degrees of income exemptions, but four mirror the federal tax schedule: MN, ND,VT, and WV

[Mike9241]

also tax brackets can be different than what's indicated for taxable income in the tax rate schedules due to qualified dividends, long-term capital gains. section 12450 recapture.

[Larry2rock]

And in that case the reported Tax bracket % based on "Taxable Income" may not be meaningful.  The amount on Qualified Dividends and Capital Gain Tax Worksheet line 5 might determine the regular Tax Bracket %.

[AmyC]

Correct, the tax bracket calculations are either used as an example to help you owe less than a $1,000 or take your tax liability and divide it by your income to get your particular/ effective tax rate for the current year.

The Tax bracket calculator is good for a rough idea. The Tax Caster tax calculator will help drill down.

@Larry2rock