Posted by Rosovich & Associates, Inc.

IRS issues inflation adjustments for 2021

IRS issues inflation adjustments for 2021

The Internal Revenue Service (IRS) recently released annual tax inflation adjustments for 2021 for more than 60 allowances, including tax rate schedules, standard deductions, itemized deductions, medical savings amount, etc. We will provide a full rundown of these new adjustments for 2021 while also outlining the important tax inflation adjustments that taxpayers should be aware of.

Update of the minimum additional tax

The minimum amount of additional tax for non-compliance with the tax return within 60 days of the expiration date has been increased by the Consolidated Appropriations Act of 2020. Starting with returns that expire after December 31, 2019, there is now a new additional tax of $ 435 or 100% of tax due, whichever is lower. This represents an additional tax increase of $ 330 above, and the tax of $ 435 will be adjusted for inflation.

2021 tax inflation adjustments: what taxpayers need to know

As the end of the year draws close, more taxpayers are starting to wonder what tax adjustments they can expect next year. The adjustments for the next fiscal year 2021 will apply to tax returns filed in 2022 and should be taken into account for planning purposes.

Standard deductions

  • As eliminated from the TCJA, the personal exemption for 2021 remains at 0.

  • The standard deduction for couples filing jointly is reduced from $300 in 2020 to $ 25,100. For single and married filing separately, the standard deduction increases to $ 12,550, an increase of $ 150 from 2020. Head of Households will see an increase of $150 from 2020 to $ 18,800.

Marginal tariffs

In 2021, the top tax rate remains at 37% for people with income over $ 523,600 and $ 628,300 for couples who file jointly. According to the IRS, additional costs include:

  • 12% for income over $ 9,950 ($ 19,900 for couples filing jointly).

  • 22% for an income over $ 40,525 ($ 81,050 for couples filing jointly);

  • 24% for income above $ 86,375 ($ 172,750 USD for couples filing jointly);

  • 32% for an income greater than $164,925 ($ 329,850 for couples filing jointly);

  • 35% for income over $209,425 ($418,850 for couples filing jointly);

  • The lowest rate is 10% of income for singles individuals with an income of $ 9,950 or less ($ 19,900 for couples filing jointly).


The maximum credit provided for adoptions in 2021 is the amount of eligible adoption costs up to $ 14,440, an increase of $ 100 from 2020.

Alternative minimum tax exemption

The alternative minimum tax exemption for 2021 is $73,600 and started phasing out at $ 523,600 for individuals. For couples who file jointly, the exemption is $ 114,600 and started phasing out at $ 1,047,200. In 2020, the exemption for individuals was $ 72,900, and it begins to decrease to $ 518,400. For couples filing jointly, the exemption was $ 113,400 and started phasing out at $ 1,036,800.

Estate Basic Exclusion Amount

The deceased's assets in 2021 will have a base exclusion amount of $ 11,700,000, an increase of $ 120,000 from 2020.

Foreign Earned Income Exclusion

Excluding income earned abroad in 2021 amounts to $ 108,700, an increase of $ 1,100 from the previous year.


In the calendar year 2021, the exclusion of annual donations is $ 15,000, as in 2020.

Itemized Deductions

There are still no limits on itemized deductions as the TCJA has removed the limit.

Lifetime learning credit

In 2021, the amount of adjusted gross income that taxpayers will use to determine the lifetime learning credit reduction is $ 119,000, an increase of $ 1,000.

Limitation for employee salary reduction

The employee wage reduction limit for flexible health plan contributions remains $ 2,750 for tax years beginning in 2021. If a cafe plan allows for the carryover of unused funds, the maximum is $ 550, an increase of $ 50.

Maximum Earned Income Credit

For taxpayers with three or more qualifying kids, the maximum earned income credit for 2021 is $ 6,728, increasing by $68 from 2020. 

Medical savings accounts

In 2021, participants who have coverage for themselves only in a health savings account must have an annual deductible of at least $ 2,400 (previously $ 2,350) but no more than $ 3,600 (previously $ 3,550). 

The maximum amount paid is $ 4,800 (previously $ 4,750). The basic annual deductible is $ 4,800 (previously $ 4,750) for participants with family coverage, and the maximum is $ 7,150 (previously $ 7,100). The maximum amount paid is $ 8,750 (previously $ 8,650).

Monthly transport limitations

The monthly limit of 2021 for the additional eligible transportation benefit remains 

$270, as does the monthly limit for eligible parking.



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