The Internal Revenue Service announced the tax year 2021 annual inflation adjustments for more than 60 tax provisions on October 26, 2020 in Revenue Procedure 2020-45, including the tax rate schedules and other tax changes. This article below talks about some highlights of changes about these annual adjustments.
The tax year 2021 adjustments described below generally apply to tax returns filed in 2022.
- Beginning with returns due after Dec. 31, 2019, the amount of the minimum additional tax for failure to file a tax return within 60 days of the due date is $435 or 100 percent of the amount of tax due, whichever is less.
- The standard deduction amount has been increased to –
|Filing Status||Standard Deduction Amount ($)|
|Married Filing Joint||$25,100|
|Married Filing Separate||$18,800|
- The personal exemption for tax year 2021 remains at 0.
- Marginal Rates: the top tax rate remains 37% for tax year 2021 with increased ceiling dollar amount.
|Marginal Rates||Single Filer||Married Filing Joint|
|37%||≧ $523,600||≧ $628,300|
|35%||$209,425 – $523,600||$418,850 – $628,300|
|32%||$164,925 – $209,425||$329,850 – $418,850|
|24%||$86,375 – $164,925||$172,750 – $329,850|
|22%||$40,525 – $86,375||$81,050 – $172,750|
|12%||$9,950 to $40,525||$19,900 – $81,050|
|10%||≦ $9,950||≦ $19,900|
- No limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act (TCJA).
- The Alternative Minimum Tax (AMT) exemption amount for tax year 2021 is $73,600 and begins to phase out at $523,600 ($114,600 for married couples filing jointly for whom the exemption begins to phase out at $1,047,200).
- The maximum Earned Income Credit amount is $6,728 for qualifying taxpayers who have three or more qualifying children for tax year 2021.
- The monthly limitation for the qualified transportation fringe benefit remains $270 for tax year 2021.
- For the taxable years beginning in 2021, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements remains $2,750. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $550.
- For tax year 2021, participants who have self-only coverage in a Medical Savings Account (MSA), the plan must have an annual deductible that is not less than $2,400, but not more than $3,600. For self-only coverage, the maximum out-of-pocket expense amount is $4,800. For tax year 2021, participants with family coverage, the floor for the annual deductible is $4,800, however, the deductible cannot be more than $7,150. For family coverage, the out-of-pocket expense limit is $8,750 for tax year 2021.
- The adjusted gross income (AGI) amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $119,000 for tax year 2021.
- The foreign earned income exclusion is $108,700 for tax year 2021.
- Estates of decedents who die during 2021 have a basic exclusion amount of $11,700,000.
- The annual exclusion for gifts stays $15,000 for calendar year 2021.
- The maximum credit allowed for adoptions for tax year 2021 is the amount of qualified adoption expenses up to $14,440.
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