IRS has issued official inflation-adjusted tax rate schedules and other key tax figures for 2021. This is part II of a three-part series of articles on those figures.
For part I, see here.
For part III, see here.
AMT exemption for child subject to kiddie tax.
The AMT exemption for 2021 for a child subject to the kiddie tax will be the lesser of (1) $7,950 (up from $7,900 for 2020) plus the child’s earned income, or (2) $73,600 (up from $72,900 for 2020).
AMT figures.
For 2021, the AMT exemption amounts will be:
… Joint returns or surviving spouses-$114,600 (up from $113,400 for 2020)
… Unmarried individuals (other than surviving spouses)-$73,600 (up from $72,900 for 2020)
… Married individuals filing separate returns-$57,300 (up from $56,700 for 2020)
… Estates and trusts-$25,700 (up from $25,400 for 2020)
For 2021, the excess taxable income above which the 28% tax rate applies will be $99,950 for married persons filing separately (up from $98,950 for 2020), and $199,900 for joint returns, unmarried individuals and estates and trusts (up from $197,900 for 2020).
For 2021, the amounts used under Code Sec. 55(d)(3) to determine the phaseout of the AMT exemption amounts will be:
… Joint returns or surviving spouses-$1,047,200 (up from $1,036,800 for 2020)
… Unmarried individuals (other than surviving spouses)-$523,600 (up from $518,400 for 2020)
… Married filing separate returns-$523,600 (up from $518,400 for 2020)
… Estates and trusts-$85,650 (up from $84,800 for 2020)
Income-based limitations on Sec. 199A/qualified business income deduction.
For 2021, taxpayers with taxable income above $164,900 for single and head of household returns, $329,800 for joint filers, and $164,925 for married filing separate returns are subject to certain limitations on the Code Sec. 199A deduction. The 2020 amounts were $163,300 and $326,600, and $163,300.
Excess business loss disallowance rule.
Under Code Sec. 461(l), an excess business loss for the tax year is the excess of aggregate deductions of the taxpayer attributable to the taxpayer’s trades and businesses, over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount. For 2021, the threshold amount is $524,000 for married individuals filing jointly (up from $518,000 for 2020) and $262,000 for other individuals (up from $259,000 for 2020).
Educator expenses.
For 2021, eligible elementary and secondary school teachers can claim an above-the line deduction for up to $250 per year of expenses paid for books and certain other supplies used in the classroom (same as for 2020).
Interest exclusion for higher education.
For 2021, the phase-out for excluding interest on U.S. savings bonds redeemed to pay qualified higher education expenses will begin at modified adjusted gross income (MAGI) above $83,200 ($124,800 on a joint return). For 2020, the corresponding figures were $82,350 and $123,550.
Qualified transportation fringe benefits.
For 2021, an employee will be able to exclude up to $270 (same as for 2020) a month for qualified parking expenses, and up to $270 a month (same as for 2020) of the combined value of transit passes and transportation in a commuter highway vehicle.
Refundable child credit.
The child credit is refundable, subject to the limit described below, to the extent of the greater of:
… 15% of earned income above $2,500, or
… for taxpayers with three or more qualifying children, the excess of the taxpayer’s social security taxes for the tax year over his or her earned income tax credit for the year. (Code Sec. 24(d))
The refundable portion of the child tax credit for any qualifying child can’t exceed $1,400 for 2021 (same as for 2020).
Earned income tax credit.
For 2021, the maximum amount of earned income on which the earned income tax credit will be computed is $7,100 for taxpayers with no qualifying children, $10,640 for taxpayers with one qualifying child, and $14,950 for taxpayers with two or more qualifying children. These amounts were $7,030, $10,540, and $14,800 for 2020, respectively.
For 2021, the phaseout of the allowable earned income tax credit will begin at $14,820 for joint filers with no qualifying children ($8,880 for others with no qualifying children), and at $25,470 for joint filers with one or more qualifying children ($19,520 for others with one or more qualifying children). These amounts were $14,680, $8,790, $25,220 and $19,330 for 2020, respectively.
The amount of disqualified income (generally investment income) a taxpayer may have before losing the entire earned income tax credit will be $3,650 for 2021 (same as for 2020).
Lifetime learning credit phaseout.
For 2021, a taxpayer’s MAGI in excess of $59,000 (same as for 2020), $119,000 for a joint return (up from $118,000 in 2020) will be used to determine the reduction under Code Sec. 25A(d)(2) in the amount of the Lifetime Learning Credit otherwise allowable under Code Sec. 25A(a)(2).
Adoption credit.
For 2021, the credit allowed for an adoption of a child with special needs will be $14,440 (up from $14,300 for 2020). The maximum credit allowed for other adoptions will be the amount of qualified adoption expenses up to $14,440 (up from $14,300 for 2020).
For 2021, the credit will begin to phase out for taxpayers with MAGI in excess of $216,660 (up from $214,520 for 2020). The phaseout will be complete if MAGI is $256,660 (up from $254,520 for 2020).
Adoption exclusion.
For 2021, the amount that can be excluded from an employee’s gross income for the adoption of a child with special needs will be $14,440 (up from $14,300 for 2020). For 2021, the maximum amount that can be excluded from an employee’s gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee will be $14,440 (up from $14,300 for 2020).
For 2021, the amount excludable from an employee’s gross income will begin to phase out for taxpayers with MAGI in excess of $216,660 (up from $214,520 for 2020). The phaseout will be complete if MAGI is $266,660 (up from $254,520 for 2020).
Student loan interest deduction.
For 2021, the deduction phases out under Code Sec. 221(b)(2)(B) ratably for taxpayers other than joint filers with MAGI between $70,000 and $85,000 (same as for 2020), and MAGI between $140,000 and $170,000 for joint filers (same as for 2020).
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