2021 Tax Brackets, Standard Deduction, and Other Changes

The IRS recently published the annual inflation updates for 2021. If you have questions about a particular amount that I do not mention here, you can likely find it in the official IRS announcements:

• Rev. Proc. 2020-45 contains most inflation adjustment figures, and
• Notice 2020-79 contains figures relating to retirement accounts.

Single 2021 Tax Brackets

Married Filing Jointly 2021 Tax Brackets

Head of Household 2021 Tax Brackets

Married Filing Separately 2021 Tax Brackets

Standard Deduction Amounts

The 2021 standard deduction amounts are as follows:

• Single or married filing separately: $12,550
• Married filing jointly: $25,100
• Head of household: $18,800

The additional standard deduction for people who have reached age 65 (or who are blind) is $1,350 for each married taxpayer or $1,700 for unmarried taxpayers.

IRA Contribution Limits

The contribution limit for Roth IRA and traditional IRA accounts is unchanged at $6,000.

The catch-up contribution limit for people age 50 or over does not get inflation adjustments and therefore is still $1,000.

401(k), 403(b), 457(b) Contribution Limits

The salary deferral limit for 401(k) and other similar plans is unchanged at $19,500.

The catch-up contribution limit for 401(k) and other similar plans for people age 50 and over is unchanged at $6,500.

The maximum possible contribution for defined contribution plans (e.g., for a self-employed person with a sufficiently high income contributing to a solo 401(k)) is increased to $58,000.

Child Tax Credit

The child tax credit ($2,000 per child) and the related phaseout threshold ($200,000 of modified adjusted gross income, $400,000 if married filing jointly) do not get inflation adjustments. The portion of the credit that can be refundable (up to $1,400 per child) does receive inflation adjustments, but it is still $1,400 for 2021.

Capital Gains and Qualified Dividends

For 2021, long-term capital gains and qualified dividends face the following tax rates:

• 0% tax rate if they fall below $80,800 of taxable income if married filing jointly, $54,100 if head of household, or $40,400 if filing as single or married filing separately.
• 15% tax rate if they fall above the 0% threshold but below $501,600 if married filing jointly, $473,750 if head of household, $445,850 if single, or $250,800 if married filing separately.
• 20% tax rate if they fall above the 15% threshold.

Alternative Minimum Tax (AMT)

The AMT exemption amount is increased to:

• $73,600 for single people and people filing as head of household,
• $114,600 for married people filing jointly, and
• $57,300 for married people filing separately.

Estate Tax

The estate tax exclusion is increased to $11,700,000 per decedent.

Pass-Through Business Income

With respect to the 20% deduction for qualified pass-through income, for 2021, the threshold amount at which the “specified service trade or business” phaseout and the wage (or wage+property) limitations begin to kick in will be $329,800 for married taxpayers filing jointly, $164,900 for single taxpayers and people filing as head of household, or $164,925 for married people filing separately.