2021 Adjustments to Tax Brackets and Deductions

During late 2020 the IRS released the annual inflation adjustments for numerous new tax provisions, including the updated tax rate schedules and other tax related changes.  For the details about these annual adjustments see the Revenue Procedure 2020-45 PDF.

The most important changes to most of us include higher standard deductions and higher income limits for general tax rates.

Standard Deduction Increases

The standard deduction for individual taxpayers increases by $150 in 2021, up to $12,550 for single filers and $18,800 for those filing as a Head of Household while couples filing jointly get a $300 increase from 2020 to a standard deduction of $25,100.   There will be no limit on itemized deductions in 2021 (same as 2018-2020).

New Income Limits For Tax Brackets

The 2021 income brackets for the seven federal tax rates will all shift upward.  For example, the 10% tax rate will apply to individual incomes up to $9,950, up from the 2020 amount of $9,875.  The upper limit for the 12% tax rate for individuals will increase to $40,525, while the limit for the 22% rate will go up to $86,375.

Similar income limit increases will apply for the 24%, 32%, 35%, and 37% marginal tax rates. In every case, the income limit for joint filers will be twice the limit for individuals (for example, $19,900 for the 10% rate, $81,050 for the 12% rate, and $172,750 for the 22% rate). In addition, the Alternative Minimum Tax (AMT) exemption amount will increase to $73,600 for individuals and $114,600 for joint filers.

Checkout the IRS : https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2021

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Please note that information contained in this news alert is not and should not be construed as legal advice or opinion nor does this information alert create an attorney-client relationship.