Did you have a happy New Year? We certainly hope so. Now it's time to get back to regular routines and take care of January chores, including gathering your tax information.
The 2021 Tax Season Begins on January
The IRS has announced that the 2021 tax season has begin in January. The beginning of tax season means that the IRS will accept individual electronic returns and start processing traditional paper returns.
Soon, you and more than 150 million of your fellow Americans will be sifting through tax information and preparing returns — or have them prepared for you. In 2018, tax preparers filed nearly 79.5 million electronic returns. In 2020, the industry employed 258,802 tax practitioners in 128,770 businesses and created $11 billion in revenue. Expect tax preparers to be even busier in 2021 due to the tax laws in effect.
You may have an alternative to paying for tax services. About 70% of American taxpayers are eligible to save money by using IRS Free File. The IRS and their commercial partners supply free software to families or individuals making less than $72,000. This software can help you file your taxes without the need of outside assistance.
Regardless of who prepares your taxes, you have until April 15 to file a return or an extension.
Tax Brackets and Tax Rates for 2020 Returns
For your 2020 tax return, which you'll file this season, the seven tax brackets set by the Tax Cuts and Jobs Act are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. For married taxpayers filing jointly the lower thresholds for each tax bracket are $19,751 (12%), $80,251 (22%), $171,051 (24%), $326,601 (32%), $414,701 (35%), and $622,051 (37%). Individual taxpayer thresholds are $9,876 (12%), $40,126 (22%), $85,526 (24%), $163,301 (32%), $207,351 (35%), and $518,401 (37%).
Did you know that the upper tax brackets do not apply directly to overall income? Those in the 37% tax bracket do not pay 37% of their total taxable income. Using married filing jointly as an example, they pay 10% on the first $19,400 of taxable income, 12% of the difference between $19,401 and $78,950, 22% of the difference between $78,951 and $168,400, and so on until reaching $612,350 when the 37% marginal rate takes effect on all further income.
How much tax revenue does the IRS take in?
The federal government rakes in over $.56 trillion in revenue every fiscal year. That works out to almost $11,000 for every man, woman and child in the U.S. In 2020, individual income taxes accounted for $1.82 trillion of that total.
Expecting a Tax Refund?
Generally, refunds are issued in less than three calendar weeks after receipt, but the government shutdown may delay them this year. That makes e-filing even more popular, since the submission is immediate. In 2019, nearly 138 million tax returns were e-filed, with more than 57.5 million people preparing and e-filing their own returns.
It may be a bit much to expect a happy feeling from tax season, but who knows? You can get the satisfaction of having your taxes done early and avoid the stress of desperate last-minute searches for receipts and other vital tax information, and perhaps enjoy a smaller tax bill thanks to the new laws. Besides, there could be a refund in your future, and that should keep the happiness rolling through the New Year.
Failing to pay your taxes or a penalty you owe could negatively impact your credit score. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.