2021 Adjustments to Tax Brackets and Deductions
The IRS recently released a list of federal income tax adjustments for 2021. The most important changes include higher standard deductions and higher income limits for common tax rates.
Standard Deduction Increases
The standard deduction for individual taxpayers will increase by $150 in 2021, up to $12,550 for single filers and $18,800 for those filing as a Head of Household. Couples filing jointly will get a standard deduction of $25,100, a $300 increase from 2020. As in 2018-2020, there will be no limit on itemized deductions in 2021.
New Income Limits For Tax Brackets
The income brackets for the seven federal tax rates will all shift upward in 2021. For example, the 10% tax rate will apply to individual incomes up to $9,950, up from $9,875 in 2020. The upper limit for the 12% tax rate for individuals will increase to $40,525, while the limit for the 22% rate will go up to $86,375.
Similar income limit increases will apply for the 24%, 32%, 35%, and 37% marginal tax rates. In every case, the income limit for joint filers will be twice the limit for individuals (for example, $19,900 for the 10% rate, $81,050 for the 12% rate, and $172,750 for the 22% rate). In addition, the Alternative Minimum Tax (AMT) exemption amount will increase to $73,600 for individuals and $114,600 for joint filers.
Check Your Withholding
If you pay federal tax primarily through paycheck withholding, your withholding amount may change after January 1, 2021 to reflect these IRS adjustments. To make sure you are on track with your tax payments in the new year, you can enter your pay stub information into the IRS Withholding Estimator Tool.
Want to know what these changes mean for your upcoming taxes? Reach out with any tax-related questions you have!