This week, the Internal Revenue Service (IRS) announced the annual inflation adjustments for the 2021 tax year. These adjustments include the official 2021 tax rate schedules, standard deduction amounts, capital gains tax rates, and more, providing taxpayers and accountants with all they need to start tax planning for 2021.
The IRS document that details the 2021 tax year adjustments, Revenue Procedure 2020-45, provides the adjustments for over 60 tax provisions. Below, we’re taking a closer look at some of the most notable tax items among these provisions, starting with 2021’s tax brackets and tax rates.
Note: These numbers are for the tax year that begins on the first day of 2021, so they correlate with the federal tax return you’ll file in 2022. If you’re looking for the numbers for the 2020 tax year, which correlate with the federal tax return due this upcoming April in 2021, you can view them here.
Income Tax Rates and Tax Brackets for 2021 Tax Year
Federal income tax brackets for all filers have been adjusted for inflation for 2021. There are still seven income tax rates for 2021 and the top marginal tax rate remains 37 percent. The 28 tax brackets for 2021 are outlined in the following chart.
Tax Rates For 2021 Calendar Year (For Taxes Due in April 2022)
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 to $9,950 | $0 to $19,900 | $0 to $9,950 | $0 to $14,200 |
| 12% | $9,951 to $40,525 | $19,901 to $81,050 | $9,951 to $40,525 | $14,201 to $54,200 |
| 22% | $40,526 to $86,375 | $81,051 to $172,750 | $40,526 to $86,375 | $54,201 to $86,350 |
| 24% | $86,376 to $164,925 | $172,751 to $329,850 | $86,376 to $164,925 | $86,351 to $164,900 |
| 32% | $164,926 to $209,425 | $329,851 to $418,850 | $164,926 to $209,425 | $164,901 to $209,400 |
| 35% | $209,426 to $523,600 | $418,851 to $628,300 | $209,426 to $314,150 | $209,401 to $523,600 |
| 37% | $523,601 or more | $628,301 or more | $314,151 or more | $523,601 or more |
Standard Deduction Amounts for 2021 Tax Year
Standard deduction amounts are up across the board for 2021. The standard deduction amount has gone up by $150 for single taxpayers, married individuals filing separately, and heads of households, and it has gone up $300 for married couples filing jointly, making the standard deduction amounts for 2021 as follows:
| Filing Status | 2021 Standard Deduction |
|---|---|
| Single or Married Filing Separately | $12,550 |
| Married Filing Jointly | $25,100 |
| Head of Household | $18,800 |
Itemized Deduction Limits for 2021 Tax Year
There are no limitations on itemized deductions for 2021, as these types of limitations were eliminated by the Tax Cuts and Jobs Act.
Personal Exemption for 2021 Tax Year
The personal exemption for 2021 is the same as it was in 2020: zero. The Tax Cuts and Jobs Act eliminated the personal exemption and this elimination is still in effect.
Alternative Minimum Tax Exemption Amounts for 2021
Alternative minimum tax (AMT) exemption amounts have been adjusted for inflation for the 2021 tax year as follows:
| Filing Status | Exemption Amount |
|---|---|
| Individual | $73,600 |
| Married Filing Jointly | $114,600 |
| Married Filing Separately | $57,300 |
| Trusts and Estates | $25,700 |
Capital Gains Tax Rates
Capital gains tax rates haven’t changed for 2021, but capital gains tax brackets have been adjusted as follows:
Capital Gains Tax Rates and Brackets for 2021
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 0% | $0 | $0 | $0 | $0 |
| 15% | $54,100 | $40,400 | $80,800 | $40,400 |
| 20% | $473,750 | $445,850 | $501,600 | $250,800 |
Notable Tax Credit and Tax Deduction Adjustments for 2021
A number of popular tax credits and deductions have been adjusted for the 2021 tax year, including:
● Earned Income Tax Credit (EITC): The maximum EITC amount for 2021 has gone up slightly, going from $6,660 to $6,728 for qualifying taxpayers with three or more qualifying children. Thresholds and phase-outs apply.
● Adoption Credit: The maximum credit for qualified adoption expenses for 2021 is $14,440, up from 2020’s $14,300.
● Child Tax Credit: The child tax credit for 2021 is $2,000 per qualifying child and up to $1,400 is refundable. Credit amounts are subject to phase-outs.
● Lifetime Learning Credit: The phase-out limits for the lifetime learning credit have changed for 2021. The credit now begins to phase out at $59,000 adjusted gross income (AGI) for individuals and at $119,000 AGI for married couples filing jointly.
● Health Flexible Spending Arrangements: The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements for 2021 is $2,750. For plans that permit carryovers, the maximum carryover amount is $550.
● Saver’s Credit: The income limit for the saver’s credit, also known as the retirement savings account contribution credit, has gone up with cost-of-living adjustments. The income limit for 2021 will be $33,000 for single filers and married individuals filing separately, $66,000 for couples filing jointly, and $49,500 for heads of household.
Retirement Plan Contribution Limits and Income Ranges for 2021 Tax Year
Cost-of-living adjustments have changed some retirement account contribution limits and income ranges for 2021. Some of the more notable adjustments include changes to:
● Workplace Retirement Plan Contribution Limits: The salary deferral amount for workplace retirement plans is unchanged for 2021, as is the catch-up contribution amount for persons aged 50 or older. However, the overall contribution limit has gone up to $58,000.
● Deductible IRA Phase-Outs: Traditional IRA contribution limits remain the same for 2021, but the income ranges for deductible IRA phase-outs, which apply to those also covered by a work retirement plan, have increased. Phase-outs now begin at $66,000 for single filers, $105,000 for couples filing jointly in which the IRA contributor is covered by a workplace retirement plan, and $198,000 for couples filing jointly in which the IRA contributor’s spouse is covered by a workplace plan, but they are not.
● Roth IRA Phase-Outs: Roth IRA contribution limits remain the same for 2021, but the taxable income phase-out range for Roth IRA contributions has changed. Phase-outs now begin at $125,000 for single filers and heads of household, and at $198,000 for married couples filing jointly.