IRS Inflation Adjustments for 2021

The IRS has recently released their inflation adjustments for the tax year 2021. More than 60 tax provisions were revised including tax rate schedules and standard deductions amounts. Below, we have summarized the revisions most relevant.

Standard Deductions:

Filing Status 2021 2020
Married filing jointly $25,100 $24,800
Single/married filing separately $12,550 $12,400
Head of household $18,800 $18,650

Tax Rates:

Tax Rate Single Married Filing Jointly
37% Income greater than $523,600 Income greater than $628,300
35% $209,426 to $523,600 $418,851 to $628,300
32% $164,926 to $209,425 $329,851 to $418,850
24% $86,376 to $164,925 $172,751 to $329,850
22% $40,526 to $86,375 $81,051 to $172,750
12% $9,951 to $40,525 $19,901 to $81,050
10% $9,950 or less $19,900 or less

The earned income tax credit has increased from $6,660 to $6,728 to qualifying taxpayers who have three or more qualifying children. Certain credit limitations, income thresholds and phaseouts may apply depending on your tax situation.

Health Savings Accounts flexible spending arrangements remains at $2,750 for 2021 for employee salary reductions. However, cafeteria plans permitting the carryover of unused funds has increased from $500 to $550.

The annual exclusion for gifts has not changed from 2020 amounts and remains at $15,000.

The majority of employee contributions to 401(k), 403(b), and most 457 plans has remained unchanged from 2020. The limit on contributions is still $19,500 with a catch-up contribution for employees ages 50 and over of $6,500. SIMPLE retirement accounts still have a limit of $13,500.

The limit on annual contributions to an IRA remains at $6,000 with a catch-up contribution for individuals age 50 and over of $1,000.

IRA and Roth IRA Eligibility for Deductible Contributions

Certain taxpayers can deduct contributions to a traditional IRA. These contributions are limited to certain conditions including income limitations and phase-outs. Below are tables detailing the phaseout ranges for taxpayers in 2021.

If neither taxpayer nor spouse is covered by a work retirement plan:

Filing Status IRA Phaseout Range Roth IRA Phaseout Range
Single $66,000 to $76,000 $125,000 to $140,000
Married filing jointly $105,000 to $125,000 $198,000 to $208,000

If an IRA contributor is not covered by a workplace retirement plan but is married to someone who is covered then the phaseout range is $198,000 to $208,000.

If an individual is filing a married filing separate return and is covered by a workplace retirement plan, then the phaseout remains $0 to $10,000 for both IRA and Roth IRA contributions.


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