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2021 Tax Brackets and Further Changes

2021 Tax Brackets and Further Changes

Uncle Sam recently announced the 2021 tax rate in a bid to take care of inflation. The top tax rate will be at 37% for 2021 tax returns filed by taxpayers in the year 2022. However, there will be an increase for the tax bracket, standard deduction, phase-out, and others. 

Taxpayers should note that the 2020 taxes will be due by the 21st of April, 2021.

Standard Deduction

The standard deduction increased by $300 in 2021 to rise to a value of $25,100 for the joint filing of married couples. Single taxpayers and married couples with separate filing increased by $150 as it rose to $12,550. There is also an increase of $150, which corresponds to $18,800 for heads of households. 

For older adults or blind individuals, they will have $1,350 as their standard deduction amount. For the married individual, the value is $1700, provided they are not a surviving spouse.

For individuals who qualified to be claimed as dependents on someone else’s tax return, the standard deduction value cannot be more than (1) $1,100 or (2) $350 alongside the individual's earned income. 

Same Tax Rate (Higher Brackets)

All taxable income above $628,300 for married individuals filing jointly, above $523,600 for return of single taxpayers' returns alongside the head of households, and above $314,150 for married individuals filing separately have the cap at 37%.

Here is the tax bracket and rate for 2021 provided in the table below:

2021 Tax Rate and Bracket

Rate

Married filing jointly 

Single Taxpayers

Head of Households

Married filing separately

10%

$19,900 and below

$9,950 and below

$14,200 and below

$9,950 and below

12%

Above $19,900

Above $9,950

Above $14,200

Above $9,950

22%

Above $81,050

Above $40,525

Above $54,200

Above $40,525

24%

Above $172,750

Above $86,375

Above $86,350

Above $86,375

32%

Above $329,850

Above $164,925

Above $164,900

Above $164,925

35%

Above $418,850

Above $209,425

Above $209,400

Above $209,425

37%

Above $628,300

Above $523,600

Above $523,600

Above $314,150

Data Source: IRS

 

Capital Gains

The rate of capital gains, which are usually lower than the ordinary income tax rate of a taxpayer, is a factor of the taxpayer's filing status and taxable income. Both regular tax and alternative minimum tax are affected by the adjusted capital gains tax rate.

The maximum zero rate amount on the net capital gains adjusted is $80,800 for married people filing jointly and half that amount for married couples filing separately for the coming year. Head of households has theirs at $54,100 while the single individual is $40,400.

Individual Tax Credit

There has also been an inflation adjustment to take care of the maximum amount in 2021 for earned income credit for people in the low-income bracket alongside the income levels that can be taxed. For three kids and above, the maximum credit value is $6,728. Married couples with joint filing will have the credit phase out at $25,470 of the AGI, which will end at $57,414. There is no provision for earned income credit as long as the total amount from earned investment income (dividends, net capital gains, etc.) is more than $3,650 in 2021. 

Qualified adoption expense credit alongside all special credit that goes along with adopting a child with special needs will shoot up to $14,440. In the same way, all exclusion from a worker’s income to take care of adoption expenses paid or refunded with an employer plan will rise.

There will be a phase-out of the $2,000 lifetime learning credit for educational expenses that are qualified for individual, spouse, and dependent between modified AGI of $59,000 and $69,000 for single returns and joint returns of $119,000 and $139,000 in the coming year. 

Retirement Plans 

There have also been limitations on contribution for retirement in 2021 alongside their phase-out range. Workers that want to contribute to retirement plans like the FG Thrift Savings Plan, 401(K) s, 457 plans, and 403(b)s will have their income exclusion pegged at $19,500. Workers 50 years and above will have the catch-up contribution at $6,500. The limitation on a simple retirement account will remain at $13,500.

While the deductive amount for all IRA contributions is $600, and the catch-up contribution for folks above 50 years at $1,000, there is an upward adjustment of the phase-out level. There could be a reduction or phasing out of the deduction if a retirement plan at the workplace covers either the spouse or the concerned taxpayer. 


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