The income tax brackets, standard deduction amounts, and many other tax items are adjusted annually for cost-of-living increases. These adjustments reflect, under a measure of inflation provided by the Tax Cuts and Jobs Act (TCJA; P.L. 115-97, 12/22/2017), the average chained Consumer Price Index (CPI) for all-urban customers (C-CPI-U) for the 12-month period ending the previous August 31. The August 2020 CPI summary has been released by the Labor Department. Using the chained CPI for August 2020 (and the preceding 11 months), Thomson Reuters Checkpoint has calculated the 2021 indexed amounts.
Note: The TCJA (like most new legislation) contains a number of errors and ambiguities and has not yet been the subject of a comprehensive technical corrections bill. Where these issues arose in the context of inflation adjustments, Thomson Reuters construed provisions in the way that seemed the most consistent with Congressional intent, reflecting our assumption that these ambiguities will eventually be resolved accordingly. While these projections reflect our best judgment, it is nonetheless worth noting that there are instances where IRS may interpret the statute in a different manner.
Tax Rate Schedules
The tax rate schedules for 2021 will be as follows.
For married filing joint returns and surviving spouses:
If taxable income is: |
The tax is: |
Not over $19,900 |
10% of taxable income |
Over $19,900 but not over $81,050 |
$1,990 plus 12% of the excess over $19,900 |
Over $81,050 but not over $172,750 |
$9,328 plus 22% of the excess over $81,050 |
Over $172,750 but not over $329,850 |
$29,502 plus 24% of the excess over $172,750 |
Over $329,850 but not over $418,850 |
$67,206 plus 32% of the excess over $329,850 |
Over $418,850 but not over $628,300 |
$95,686 plus 35% of the excess over $418,850 |
Over $628,300 |
$168,993.50 plus 37% of the excess over $628,300 |
For single individuals (other than heads of household and surviving spouses):
If taxable income is: |
The tax is: |
Not over $9,950 |
10% of taxable income |
Over $9,950 but not over $40,525 |
$995 plus 12% of the excess over $9,950 |
Over $40,525 but not over $86,375 |
$4,664 plus 22% of the excess over $40,525 |
Over $86,375 but not over $164,925 |
$14,751 plus 24% of the excess over $86,375 |
Over $164,925 but not over $209,425 |
$33,603 plus 32% of the excess over $164,925 |
Over $209,425 but not over $523,600 |
$47,843 plus 35% of the excess over $209,425 |
Over $523,600 |
$157,804.25 plus 37% of the excess over $523,600 |
For heads of household:
If taxable income is: |
The tax is: |
Not over $14,200 |
10% of taxable income |
Over $14,200 but not over $54,200 |
$1,420 plus 12% of the excess over $14,200 |
Over $54,200 but not over $86,350 |
$6,220 plus 22% of the excess over $54,200 |
Over $86,350 but not over $164,900 |
$13,293 plus 24% of the excess over $86,350 |
Over $164,900 but not over $209,400 |
$32,145 plus 32% of the excess over $164,900 |
Over $209,400 but not over $523,600 |
$46,385 plus 35% of the excess over $209,425 |
Over $523,600 |
$156,355 plus 37% of the excess over $523,600 |
Note: The head of household tax rate schedule projections have been updated from a prior version of this article.
For married filing separate returns:
If taxable income is: |
The tax is: |
Not over $9,950 |
10% of taxable income |
Over $9,950 but not over $40,525 |
$995 plus 12% of the excess over $9,950 |
Over $40,525 but not over $86,375 |
$4,664 plus 22% of the excess over $40,525 |
Over $86,375 but not over $164,925 |
$14,751 plus 24% of the excess over $86,375 |
Over $164,925 but not over $209,425 |
$33,603 plus 32% of the excess over $164,925 |
Over $209,425 but not over $314,150 |
$47,843 plus 35% of the excess over $209,425 |
Over $314,150 |
$84,496.75 plus 37% of the excess over $314,150 |
For estates and trusts:
If taxable income is: |
The tax is: |
Less than $2,650 |
10% of taxable income |
Over $2,650 but not over $9,550 |
$265 plus 24% of the excess over $2,650 |
Over $9,550 but not over $13,050 |
$1,921 plus 35% of the excess over $9,550 |
Over $13,050 |
$3,146 plus 37% of the excess over $13,050 |
Standard Deductions
The basis standard deduction for 2021 will be:
Filing Status |
Standard Deduction |
Joint return or surviving spouse |
$25,100 (up from $24,800 for 2020) |
Single (other than HoH or surviving spouse) |
$12,550 (up from $12,400 for 2020) |
Head of household |
$18,800 (up from $18,650 for 2020) |
Married filing separate returns |
$12,550 (up from $12,400 for 2020) |
Dependents
For an individual who can be claimed as a dependent on another’s return, the basic standard deduction for 2021 will be $1,100 (same as in 2020), or $350 (same as in 2020) plus the individual’s earned income, whichever is greater. However, the standard deduction may not exceed the regular standard deduction for that individual.
Older and blind taxpayers
For 2021, the additional standard deduction for married taxpayers 65 or over or blind will be $1,350 (up from $1,300 in 2020). For a single taxpayer or head of household who is 65 or over or blind, the additional standard deduction for 2021 will be $1,700 (up from $1,650 in 2020).
Exemption amount
While the dependency exemption deduction under Code Sec. 151 is reduced to zero from 2018 through 2025, this reduction isn’t taken into account for other purposes of the Code, such as who is a qualifying relative for family credit purposes, and eligibility for head-of-household status. For 2021, this amount is $4,300 (same as in 2020).
Capital Gains
For 2021, the capital gains tax rates will be as follows:
The 0% capital gains tax rate applies to adjusted net capital gain of up to:
- Joint returns and surviving spouses—$80,800 (up from $80,000 for 2020)
- Single filers and married taxpayers filing separately—$40,400 (up from $40,000 for 2020)
- Heads of household—$54,100 (up from $53,600 for 2020)
- Estates and trusts—$2,700 (up from $2,650 for 2020)
The 15% capital gains tax rate applies to adjusted net capital gain over the amount subject to the 0% rate, and up to:
- Joint returns and surviving spouses—$501,600 (up from $496,600 for 2020)
- Married taxpayers filing separately—$250,800 (up from $248,300 for 2020)
- Heads of household—$473,750 (up from $469,050 for 2020)
- Single filers—$445,850 (up from $441,450 for 2020)
- Estates and trusts—$13,250 (up from $13,150 for 2020)
The 20% capital gains tax rate applies to adjusted net capital gain over the above 15%-maximum amounts.
Other Key Tax Figures
Kiddie tax
The exemption from the kiddie tax for 2021 will be $2,200 (same as in 2020). A parent will be able to elect to include a child’s income on the parent’s return for 2021 if the child’s income is more than $1,100 and less than $11,000 (same as in 2020).
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—$85,700 (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, $329,850 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 in 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 in 2020) a month for qualified parking expenses, and up to $270 a month (same as in 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 in 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 $14,830 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.
NOTE: Taxpayers must use IRS tables to determine the amount of their earned income tax credit. While these tables will be based on the inflation-adjusted figure projected above, because the credit under the tables is the same for everyone within a $50 range, there may be slight differences between the credit under the tables and the credit the taxpayer would determine using those inflation-adjusted figures.
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 in 2020).
Lifetime learning credit phaseout
For 2021, a taxpayer’s MAGI in excess of $59,000 (same as in 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 $216,670 (up from $214,520 for 2020). The phaseout will be complete if MAGI is $256,670 (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 $14,400 (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 $216,670 (up from $214,520 for 2020). The phaseout will be complete if MAGI is $256,670 (up from $254,520 for 2020).
Student loan interest deduction
For 2021, the deduction phases out ratably for taxpayers other than joint filers with MAGI between $70,000 and $85,000 (same as in 2020), and MAGI between $140,000 and $170,000 for joint filers (same as in 2020).
MAGI limits for making deductible contributions by active plan participants to traditional IRAs
In general, an individual who isn’t an active participant in certain employer-sponsored retirement plans, and whose spouse isn’t an active participant, may make an annual deductible cash contribution to an IRA up to the lesser of: (1) an inflation-adjusted statutory dollar limit, or (2) 100% of the compensation that’s includible in his or her gross income for that year. For 2021, the statutory dollar limit is $6,000 (same as in 2020), plus an additional $1,000 for those age 50 or older.
If the individual (or his or her spouse) is an active plan participant, the deduction phases out over a specified dollar range of MAGI. For taxpayers filing joint returns, the otherwise allowable deductible contribution will be phased out ratably for 2021 for MAGI between $105,000 and $125,000 (up from $104,000 and $124,000 for 2020).
For 2021, for single taxpayers and heads of household, the otherwise allowable deductible contribution will be phased out ratably for MAGI between $66,000 and $76,000 (up from $65,000 and $75,000 for 2020). For married taxpayers filing separate returns, the otherwise allowable deductible contribution will be phased out ratably for MAGI between $0 and $10,000 (same as for 2020).
For a married taxpayer who is not an active plan participant but whose spouse is such a participant, the otherwise allowable deductible contribution will be phased out ratably for 2021 for MAGI between $198,000 and $208,000 (up from between $196,000 and $206,000 for 2020).
MAGI limits for making contributions to Roth IRAs
Individuals may make nondeductible contributions to a Roth IRA, subject to the overall limit on IRA contributions.
The maximum annual contribution that can be made to a Roth IRA is phased out for taxpayers with MAGI over certain levels for the tax year. For taxpayers filing joint returns, the otherwise allowable contributions to a Roth IRA will be phased out ratably for 2021 for MAGI between $198,000 and $208,000 (up from $196,000 and $206,000 for 2020). For single taxpayers and heads of household, it will be phased out ratably for MAGI between $125,000 and $140,000 (up from $124,000 and $139,000 for 2020). For married taxpayers filing separate returns, the otherwise allowable contribution will continue to be phased out ratably for MAGI between $0 and $10,000 (same as for 2020).
Saver’s credit
For tax years beginning in 2021, an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his or her qualified retirement savings contributions, as follows:
- Joint filers: $0 to $39,500, 50%; $39,500 to $43,000, 20%; and $43,000 to $66,000, 10% (no credit if AGI is above $66,000).
- Heads of households: $0 to $29,625, 50%; $29,625 to $32,250, 20%; and $32,250 to $49,500, 10% (no credit if AGI is above $49,500).
- All other filers: $0 to $19,750, 50%; $19,750 to $21,500, 20%; and $21,500 to $33,000, 10% (no credit if AGI is above $33,000).
By way of comparison, for tax years beginning in 2020, an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his or her qualified retirement savings contributions, as follows:
- Joint filers: $0 to $39,000, 50%; $39,000 to $42,500, 20%; and $42,500 to $65,000, 10% (no credit if AGI is above $65,000).
- Heads of households: $0 to $29,250, 50%; $29,250 to $31,875, 20%; and $31,875 to $48,750, 10% (no credit if AGI is above $48,750).
- All other filers: $0 to $19,500, 50%; $19,500 to $21,250, 20%; and $21,250 to $32,500, 10% (no credit if AGI is above $32,500).
Additional inflation-adjusted estimates calculated by Thomson Reuters will be published in Federal Tax Update, available on Checkpoint.
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