Amidst all the pandemic news and 2020 election drama, many might have missed that the IRS also quietly published new 2021 tax rates in late October and a there are plenty of changes that will impact taxpayers in 2021.
While it’s more than a year away (these changes are for 2021 returns filed by taxpayers in 2022), there are a few changes that you should know about.
Rules Not Yet Extended
It is very important that taxpayers realize that the 2020 rules enacted during the pandemic – namely the rules surrounding borrowing, distributions and the waiver of Required Minimum Distributions – will not be effective in 2021 unless Washington passes new legislation.
In very simple terms, the standard deduction is a specific dollar amount that reduces your taxable income.
- The standard deduction for 2021 will be $25,100, an increase of $300, for married couples filing joint returns;
- The standard deduction for 2021 will be $12,550, an increase of $150, for single taxpayers’ individual returns and married individuals filing separately;
- The standard deduction for 2021 will be $18,800, an increase of $150, for heads of households.
2021 Tax Brackets
The tax rates and tax brackets for 2021, adjusted for inflation, are provided as follows:
Married Joint Return
Head of Household
Married Separate Return
$19,900 or less
$9950 or less
$14,200 or less
$9950 or less
Over $ 86,375
Medical Savings Accounts
Certain thresholds and ceilings for participants in Medical Savings Accounts will also be increased:
- For self-only coverage, the plan’s annual deductible for 2021 must be at least $2,400 and no more than $3,600 with a maximum out-of-pocket expense of $4800, an increase of $50 for each amount.
- For family coverage, the deductible must be at least $4,800 but no more than $7,150, an increase of $50 for both amounts.
- The out-of-pocket expense maximum for family coverage will increase by $100 to $8,750 for 2021.
Retirement Plan Contributions
The IRS also announced the 2021 limitations on retirement plan contributions and their phase-out ranges. The limitations for employee contributions to employer retirement plans will remain at $19,500, and the catch-up contributions for those 50 and older will remain at $6500. For SIMPLE retirement accounts the limitation will remain $13,500.
Although the deductible amount for IRA contributions will remain at $6000 (with catch-up contributions for those 50 and older remaining at $1,000) the phase-out levels have adjusted upwards. And the phase-out levels depend on whether or not one is also an active participant in another employer retirement plan.
- If an individual is an active participant in an employer retirement plan, the deduction phases out for adjusted gross incomes between $66,000 and $76,000 for single individuals and heads of households, and between $105,000 and $125,000 for married couples filing joint returns.
- For an IRA contributor who is not an active participant in another plan but whose spouse is an active contributor, the phase out ranges from $198,000 to $208,000.
- For a married active contributor filing a separate return, there is no adjustment and the phase-out range will remain $0 to $10,000.
These phase-outs do not apply if neither are covered by an employer-sponsored retirement plan.