The Internal Revenue Service (IRS) adjusts tax provisions annually to account for inflation and prevent bracket creep, where individuals are pushed into higher tax brackets due to rising income without a corresponding increase in real income. For the 2021 tax year, several changes have been implemented, including adjustments to tax brackets, standard deductions, and certain credits. This guide will provide a comprehensive overview of the new tax code for 2021, highlighting key changes and their implications for taxpayers.
2021 Federal Income Tax Brackets
The IRS has adjusted the income limits for all tax brackets for 2021 to account for inflation. The top marginal income tax rate of 37% applies to taxable income of $523,600 and above for single filers and $628,300 and above for married couples filing jointly.
| Filing Status | Tax Rate | For Taxable Income |
|---|---|---|
| Single | 10% | Up to $9,950 |
| 12% | $9,951 to $40,525 | |
| 22% | $40,526 to $86,375 | |
| 24% | $86,376 to $164,925 | |
| 32% | $164,926 to $209,425 | |
| 35% | $209,426 to $523,600 | |
| 37% | Over $523,600 | |
| Married Filing Jointly | 10% | Up to $19,900 |
| 12% | $19,901 to $81,050 | |
| 22% | $81,051 to $172,750 | |
| 24% | $172,751 to $329,850 | |
| 32% | $329,851 to $418,850 | |
| 35% | $418,851 to $628,300 | |
| 37% | Over $628,300 | |
| Head of Household | 10% | Up to $14,200 |
| 12% | $14,201 to $54,200 | |
| 22% | $54,201 to $86,350 | |
| 24% | $86,351 to $164,900 | |
| 32% | $164,901 to $209,400 | |
| 35% | $209,401 to $523,600 | |
| 37% | Over $523,600 |
Standard Deduction and Personal Exemption
The standard deduction, which reduces taxable income by a set amount, has been increased for 2021. The standard deduction for single filers is now $12,550, an increase of $150, while the standard deduction for married couples filing jointly is $25,100, an increase of $300. The personal exemption, which was previously eliminated, remains eliminated for 2021.
Changes to Credits and Deductions
Earned Income Tax Credit (EITC)
The EITC has been expanded for 2021, with increased maximum credits and eligibility criteria. Taxpayers without qualifying children can now claim the credit, and the income limit for claiming the maximum credit has been raised. Additionally, taxpayers can choose to use their 2019 earned income to calculate the credit if it is higher than their 2021 earned income.
Child Tax Credit (CTC)
The CTC has been significantly increased for 2021, with the maximum credit amount rising to $3,600 for children under 6 and $3,000 for children ages 6 to 17. The credit is now fully refundable, meaning that eligible taxpayers can receive the full amount of the credit even if they owe no taxes.
Premium Tax Credit (PTC)
The PTC, which helps low- and moderate-income individuals and families afford health insurance premiums, has been modified for 2021. The income limits for claiming the credit have been adjusted, and the amount of the credit has been increased for some taxpayers.
Other Changes
- The deduction for qualified business income has been increased for 2021.
- The maximum amount of qualified long-term care premiums that can be included as medical expenses has been increased.
- The annual contribution limits for Health Savings Accounts (HSAs) have been adjusted for 2021.
The 2021 tax code incorporates several changes that impact taxpayers’ tax liability. These changes include adjustments to tax brackets, the standard deduction, and various credits and deductions. Taxpayers should be aware of these changes to ensure accurate tax preparation and maximize their tax savings.
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FAQ
What are the new IRS tax laws for 2021?
What is the new tax deduction for 2021?
At what age is Social Security no longer taxed?
What is the $600 tax rule?
What are the 2021 tax brackets?
Importantly, the 2021 brackets are for income earned in 2021, which most people will file taxes on before April 15, 2022. The 2022 brackets are for income earned in 2022, which most people will file taxes on before April 15, 2023. Single Tax Brackets and Standard Deduction Married Tax Brackets and Standard Deduction
What is the new standard deduction for 2021?
In addition to updating income limits on tax brackets, the IRS also increased the standard deduction ― a flat dollar amount that decreases taxable income for everyone who doesn’t itemize. For individuals and married couples filing separately, the standard deduction for tax year 2021 increased by $150 to $12,550.
What is the top marginal income tax rate in 2021?
The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $523,600 and higher for single filers and $628,300 and higher for married couples filing jointly. 2021 Federal Income Tax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households
What are the income limits for 2021?
In 2021, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Tables 1). The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $523,600 and higher for single filers and $628,300 and higher for married couples filing jointly.