By Payroll and Entitlements Editorial Staff
The IRS has released the annual inflation adjustments for 2021 for the income tax rate tables, plus more than 50 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
2021 income tax brackets. For 2021, the highest income tax bracket of 37 percent applies when taxable income hits:
- $628,300 for married individuals filing jointly and surviving spouses,
- $523,600 for single individuals and heads of households,
- $314,150 for married individuals filing separately, and
- $13,050 for estates and trusts.
2021 standard deduction. The standard deduction for 2021 is:
- $25,100 for married individuals filing jointly and surviving spouses,
- $18,800 for heads of households, and
- $12,550 for single individuals and married individuals filing separately.
The standard deduction for a dependent is limited to the greater of:
- $1,100 or
- the sum of $350, plus the dependent’s earned income.
Individuals who are blind or at least 65 years old get an additional standard deduction of:
- $1,350 for married taxpayers and surviving spouses, or
- $1,700 for other taxpayers.
Alternative Minimum Tax (AMT) exemption for 2021. The AMT exemption for 2021 is:
- $114,600 for married individuals filing jointly and surviving spouses,
- $73,600 for single individuals and heads of households,
- $57,300 for married individuals filing separately, and
- $25,700 for estates and trusts.
The exemption amounts phase out in 2021 when AMTI exceeds:
- $1,047,200 for married individuals filing jointly and surviving spouses,
- $523,600 for single individuals, heads of households, and married individuals filing separately, and
- $85,650 for estates and trusts.
For tax years beginning in 2021, taxpayers can expense up to $1,050,000 in section 179 property. However, this dollar limit is reduced when the cost of section 179 property placed in service during the year exceeds $2,620,000.
Estate and gift tax adjustments for 2021. The following inflation adjustments apply to federal estate and gift taxes in 2021:
- the gift tax exclusion is $15,000 per donee, or $159,000 for gifts to spouses who are not U.S. citizens;
- the federal estate tax exclusion is $11,700,000; and
- the maximum reduction for real property under the special valuation method is $1,190,000.
2021 inflation adjustments for other tax items. The maximum foreign earned income exclusion amount in 2021 is $108,700.
The IRS also provided inflation-adjusted amounts for the:
- adoption credit,
- lifetime learning credit,
- earned income credit,
- excludable interest on U.S. savings bonds used for education,
- various penalties, and
- many other provisions.
Effective date of 2021 adjustments. These inflation adjustments generally apply to tax years beginning in 2021, so they affect most returns that will be filed in 2022. However, some specified figures apply to transactions or events in calendar year 2021. (Rev. Proc. 2020-45, IR-2020-245, October 27, 2020).
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