2021 IRS Inflation Adjustments

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Income Tax Planning

In October 2020, the IRS released Revenue Procedure 2020-45 (PDF) and Notice 2020-79 (PDF), which detail the tax changes, inflation and cost of living adjustments for 2021.

Below, we’ve summarized a few which we feel will have the broadest impact:

STANDARD DEDUCTION
	2020	2021	Change
Married Filing Jointly¹	$24,800	$25,100	$300
Single² and Married Filing Separately¹	$12,400	$12,550	$150
Head of Household²	$18,650	$18,800	$150

¹A married filer who is blind or over age 65 can claim an additional $1,350. Two married filers who are both over age 65 or blind can claim $2,700, up $100 from 2020.
²Single or head of household filers who are blind or over age 65 can claim an additional $1,700 standard deduction, up $50 from 2020.

ESTATE & GIFT TAX
	2020	2021	Change
Annual Exclusion Gifts	$15,000	$15,000	No Change
Estate and Gift Tax Basic Exclusion	$11,580,000	$11,700,000	$120,000
Generation Skipping Exemption	$11,580,000	$11,700,000	$120,000

OTHER ADJUSTMENTS
	2020	2021	Change
Long Term Capital Gains Rate brackets (married filing jointly)	0% – up to $80,000	0% – up to $80,800	0% – $800
	15% – up to $496,600	15% – up to $501,600	15% – $5,000
	20% – $496,601 and above	20% – $501,601 and above
Unearned Income Subject to Kiddie Tax	Above $1,100	Above $1,100	No change
Health/Medical Savings Account contribution limit	$3,550 (self only)	$3,600 (self only)	$50 (self only)
Health/Medical Savings Account contribution limit	$7,100 (family)	$7,200 (family)	$100 (family)
Cafeteria plans (Flexible Spending Account) maximum contributions	$2,750	$2,750	No change
Adoption Credit for Qualified Expenses (phased out based on MAGI)	$14,300	$14,440	$140
Foreign Earned Income Exclusion	$107,600	$108,700	$1,100
Lifetime Learning Credit Joint Filer MAGI Threshold	$118,000	$119,000	$1,000
Limitation on Itemized Deductions	None	None	No Change
Qualified Business Income (Section 199A) Deduction Threshold	$326,600 married filing joint	$329,800 married filing joint	$3,200

INCOME TAX BRACKETS
MARRIED FILING JOINTLY & SURVIVING SPOUSES
	2021	2021 Tax is This Amount Plus this Percentage	Of the Amount Over
10%	Income up to $19,900	$0 plus 10%	$0
12%	$19,900 to $81,050	$1,990 plus 12%	$19,900
22%	$80,051 to $172,750	$9,328 plus 22%	$80,050
24%	$172,751 to $329,850	$29,211 plus 24%	$172,050
32%	$329,851 to $418,850	$66,915 plus 32%	$329,850
35%	$418,851 to $628,300	$95,395 plus 35%	$418,850
37%	Income over $628,301	$168,702 plus 37%	$628,300

INCOME TAX BRACKETS
SINGLE TAXPAYERS
	2021	2021 Tax is This Amount Plus this Percentage	Of the Amount Over
10%	Income up to $9,950	$0 plus 10%	$0
12%	$9,951 to $40,525	$995 plus 12%	$9,950
22%	$40,526 to $86,375	$4,664 plus 22%	$40,525
24%	$86,376 to $164,925	$14,751 plus 24%	$86,375
32%	$164,926 to $209,425	$33,603 plus 32%	$164,925
35%	$209,426 to $523,600	$47,843 plus 35%	$209,425
37%	Income over $523,601	$157,804 plus 37%	$523,601

There were no changes to the contribution limits for Traditional IRAs, Roth IRAs, and Elective Deferral Plans. Furthermore, no adjustments were made to the AGI Phase-Outs for Roth contributions and deductible IRA contributions. The current limits and Phase-Outs are listed below for reference:

CONTRIBUTION LIMITS¹
Traditional and Roth IRA	$6,000
IRA Catch-up Limit²	$1,000
Elective Deferral Plans^2,3	$19,500
Elective Deferral Plan Catch-up Limit²	$6,500

¹ Check with your advisor for the limits applicable to SEP, SIMPLE, and defined contribution plans.
² Catch-up contributions are available for anyone over age 50
³ Elective deferral plans include 401(k) plans, 403(b) plans, most 457 plans, and Thrift Savings plans

AGI PHASE-OUT
ROTH IRA CONTRIBUTIONS
Single/Head of Household	$124,000-$139,000
Married Filing Joint	$196,000-$206,000

AGI PHASE-OUT
DEDUCTIBLE IRA CONTRIBUTIONS
Single/Head of Household	$65,000-$75,000
Married Filing Separate	$0-$10,000
Married Filing Joint (active spouse)	$104,000-$124,000
Married Filing Joint (non-active spouse)	$196,000-$206,000

There are many other cost-of-living adjustments for 2021 which may impact you. Review the Revenue Procedure 2020-45 (PDF) and Notice 2020-79 (PDF) and consult your CPA to see if there are others you need to be aware of for your specific situation.

This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.