Tax Brackets Explained using Excel's awesome XLOOKUP function

Tax brackets show you the tax rate you will pay on each portion of your income. There are seven tax brackets. The United States has a progressive tax system based on your Taxable income, not Gross income or Net Income. Your income is taxed at different rates with a progressive tax system. The more you make, the higher the rate for that bracket. For example, if you are single in 2021, the lowest tax rate of 10% is applied to your income's first $9,950. The next portion of your income is then taxed at 12%, and then 22%.

Example of Progressive Tax System
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If you are single in 2021, and your taxable income is 86,375, you would be taxed at the rates below.
10% for the first 9,950 = $950 in tax
12% for the next $30,575 = $3,669 in tax
22% for the next $45,850 = $10,087 in tax
Those three income numbers total $86,375 and the tax would be $14,751 (950+3,669+10,087).
Notice the more you make the higher the percentage.

Taxable Income
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Taxable income is your Adjusted Gross Income (AGI) minus either the Standard deduction or itemized deductions. Screenshot of IRS form 1040 for 2020 showing AGI and Taxable Income. AGI is line 11 and Taxable Income is line 15

Chris Menard's Blog Post on Tax Brackets & XLOOKUP
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Learn Personal Finance with Microsoft Creators
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Seven tax brackets for 2021
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For 2021, there are seven different tax brackets with tax rates of 10, 12, 22, 24, 32, 35, and 37 percent. The amount of tax you owe depends on both your taxable income and your filing status.

Chapters:
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0:00 Intro
1:17 Progressive tax system
2:05 Tax Brackets and IRS webpage
3:09 Formula to add tax
3:35 Taxable income
3:57 Standard deductions
4:30 Manual calculate tax
5:40 XLOOKUP for Tax
10:40 Tax on extra money
12:25 Marginal Tax Rate
13:00 Effective Tax Rate

Standard deductions for 2021
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Single and married filing separately $12,550
Married filing jointly $25,100
Head of household $18,800

Excel file for tax brackets and XLOOKUP
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IRS Website with Tax Brackets and Standard Deductions for 2021
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XLOOKUP videos by Chris Menard
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1) XLOOKUP - Excel's new awesome function by Chris Menard
2) XLOOKUP vs. VLOOKUP and Match

XLOOKUP availability
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Excel for Microsoft 365, Excel for Microsoft 365 for Mac, Excel for the web, Excel for iPad, Excel for iPhone, Excel for Android tablets, Excel for Android phones

#msexcel #personalfinance #xlookup #xlookupfunction #chrismenard #chrismenardtraining

Other websites:
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[DrewDBum]

Hi Chris, exactly what I was looking for.

[sarahherskovics]

Thank you so much for this video, so clear and to the point, keep it up!!

[rarespace]

This helped out tremendously, thank you so much!

[ronalddaggett]

Great video for Finance and Excel. Thank you

[n.bcritical]

Bless you sir
ty so much
instant subscrib

[williamthompson]

Thank you for this! Extremely helpful material!

[H-uo]

Thank you - this was exactly I was looking for!

[waltdesiderio]

Excellent video!

Just one point of clarification. The video correctly shows the IRS’s tax table and corresponding tax rates by using taxable income which is defined as adjusted gross income less the standard or itemized deductions. However, the effective tax rate, by definition, is the income tax as a percentage of adjusted gross income and not as a percentage of taxable income as demonstrated. What is shown in the video is a “blended” marginal tax rate and not the taxpayer’s effective tax rate. In other words, the effective tax rate is the actually tax rate on every dollar received before any deductions are applied.

Just thought it was worth mentioning to avoid any confusion.

[ukaszsotkiewicz]

Hi, maybe I'm wrong, but shouldn't you change the parameter [match_mode] to 1 instead of -1 in last XLOOKUP because you want to get the tax % for the amount exceeding last found (not bigger) tax rate. So for your 50 000 example the last 9 475 should be taxed with 24% and not 22% as you mentioned. Please correct me if I'm wrong.

[asmaaembaby]

Do you have a video on how you set up the functions/formula for the tax rate?

[jamesbeattey]

Chris - in your video you showed the IRA standard deduction, but did not subtract that from income in your calculations. I assume you'd make that adjustment if you were really trying to dial this in?

[paulhofmeister]

Hi Chris, The formula does not seem to work for an income in the lowest bracket; say USD 5, 000

[emmadkareem]

Thank you for the video but it is very confusing. The mathematical concept needs good explanation before introduction of Vlookup. I am yet to see anyone explain the subject in a real good way!