These are the New Tax Rates, Exemptions and Deductions for 2021

The Internal Revenue Service (IRS) has announced the new federal income tax brackets, exemptions and deduction limits for 2021. The new inflation-based figures take effect for the 2021 tax year, meaning that they will impact U.S. taxpayers’ April 2022 returns. Here, Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, provides a rundown of some of the most significant changes.

What are the Marginal Tax Rates for the 2021 Tax Year?

While the marginal tax rates are remaining the same for 2021, the thresholds for each tax bracket are increasingly slightly. The smallest increase comes at the 12-percent tax bracket (up $75 for individual filers), while the largest increase comes at the top of the range (up $5,200 for individual filers). For 2021, the federal income tax brackets are as follows:

• 37 percent for income over $523,600 ($628,300 for married couples filing jointly)
• 35 percent for income over $209,425 ($418,850 for married couples filing jointly)
• 32 percent for income over $164,925 ($329,850 for married couples filing jointly)
• 24 percent for income over $86,375 ($172,750 for married couples filing jointly)
• 22 percent for income over $40,525 ($81,050 for married couples filing jointly)
• 12 percent for income over $9,950 ($19,900 for married couples filing jointly)
• 10 percent for income of $9,950 or less ($19,900 for married couples filing jointly)

What are the 2021 Federal Income Tax Exemption and Deduction Rates?

For 2021, various exemption and deduction rates are increasing slightly consistent with the federal inflation rate, while others are remaining stagnant. For those that are not changing, this is predominantly due to provisions of the Tax Cuts and Jobs Act that address these exemptions and deductions specifically. Here is an overview of some of the key changes (and non-changes) for 2021:

• Standard Deduction – For single taxpayers, the standard deduction is increasing to $12,500, and for heads of household it is increasing to $18,800. The 2021 standard deduction for married couples filing jointly is $25,100.
• Personal Exemption – The personal exemption is remaining at $0 for all U.S. taxpayers in 2021 as a result of the Tax Cuts and Jobs Act.
• Limit on Itemized Deductions – The Tax Cuts and Jobs Act also eliminated the limit on itemized deductions for all taxpayers, and this remains in effect for 2021 as well.
• Alternative Minimum Tax (AMT) – The AMT exemption for 2021 is $73,600 for individual taxpayers ($114,600 for married couples filing jointly), and it begins to phase out at $523,600 ($1,047,200 for married couples filing jointly).
• Lifetime Learning Credit – The adjusted gross income amount used to determine the reduction in the Lifetime Learning Credit is increasing to $119,000 for joint filers.
• Foreign Earned Income Exclusion – The income exclusion for foreign income is increasing slightly to $108,700 for the 2021 tax year.
• Estate Tax Exclusion – The basic exclusion for estate tax liability is increasing to $11,700,000 for 2021, up from $11,580,000 in 2020.
• Gift Tax Exclusion – The annual gift tax exclusion is remaining unchanged at $15,000 for 2021.

Tax Questions? Schedule a Confidential Consultation with Virginia Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

If you have questions about your federal income tax obligations or any other matter involving the IRS, we encourage you to contact us for a confidential consultation. To schedule an appointment with Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 703-752-3752, email ket@thornlawgroup.com or contact Thorn Law Group online today.