2021 Tax Year Guide

Taxes Jan 05, 2021

This is for tax year 2021 (and filed in April 2022), click here for 2020's guide.

Highlights

  • Tax brackets increased with inflation.
  • IRA contribution limits are unchanged.
  • Certain COVID related alterations and specifics.

Tax Tables

2021 Tax Bracket Single Income Married Income
10% $0 to $9,950 $0 to $19,900
12% $9,950 to $40,525 $19,900 to $81,050
22% $40,525 to $86,375 $81,050 to $172,750
24% $86,375 to $164,925 $172,750 to $329,850
32% $164,925 to $209,425 $329,850 to $418,850
35% $209,425 to $523,600 $418,850 to $628,300
37% $523,600+ $628,300+
2021 Capital Gains Single Income Married Income
0% $0 to $40,400 $0 to $80,800
15% $40,400 to $445,850 $80,800 to $501,600
20% $445,850+ $501,600+
2021 Additional Taxes Single Married
Social Security Tax Cap (6.2%) $137,700 and under $0 to $80,000
Net Investment Income (3.8%) $200,000+ MAGI $250,000+ MAGI
2021 Retirement Contribution Limits Under Age 50 Age 50+
IRA Up to $6,000 (+$1,000)
401(K) or TSP Up to $19,500 (+6,500)
SEP IRA or Solo 401(K) Up to $57,000 (+6,500)
2021 Standard Deduction Single Married
Amount $12,550 $25,100

  • Unemployment compensation is taxable (will receive a 1099-G form), while stimulus checks are not.
  • Unless you are self-employed, you can not deduct home office expenses.
  • Flexible Spending Accounts - Permitted to carry over funds from 2020 to 2021 and 2021 to 2022.
  • Charitable deduction allowed ($300 - see below) for non-itemizers.
  • Remote working may require multiple state income tax returns - varies by state.  Usually you can receive credit for taxes paid to other states.
  • Business meal deductions - 100% for 2021 and 2022.
  • IRA/401k withdraws in declared disasters - up to $100,000 can be taken out for 3 years or permanently added to taxable income.

Deductions & Credits Overview

  • Charitable deduction - Up to $300 non-itemized or up to 100% of AGI itemized for 2020 & 2021. See below.
  • Medical expense deduction - Established permanent threshold of 7.5% of AGI.
  • Recovery Rebate Credit - For those who meet qualifications based on 2020 income but did not receive a stimulus check for $1,200 this year (see breakout section). Non-taxable.
  • Child Tax Credit - $2,000/child tax credit (income under $200,000/$400,000). See below.
  • Self-employed deductions - Multiple.

Low Income

  • Earned Income Tax Credit (EITC) - Income under $56,844.
  • Saver's Credit - Income under $32,500/$65,000.

Charitable Deduction Overview

New for 2020 and 2021.

Non-itemizers can take a charitable deduction of up to $300 on taxable income (but not Adjusted Gross Income (AGI) which is used for certain Roth IRA, investment surtax, and Medicare premium thresholds).

Itemizers can deduct up to 100% of AGI.

Recovery Rebate Credit Overview

Stimulus checks are legally a tax credit that is paid in advance.  Most people will receive their check directly, however if you did not it is still possible to receive it through the normal tax filing process.


IRA Limits

Traditional IRA

This is the limit for how much you can deduct when contributing to a Traditional IRA.  You can still contribute if you earn more than this amount, it just won't be tax deductible.

2021 Traditional IRA Single Married
Deduction Phase-out $66,000 to $76,000 $105,000 to $125,000
Non-deductable Any income Any income

Note: If you or your spouse are not covered by a workplace retirement plan additional rules apply.

Roth IRA

This is the limit for who can contribute to a Roth IRA.  If you are above this, you can do a "backdoor" contribution by contributing to a Traditional IRA and converting it to a Roth.

2021 Roth IRA Single Married
Direct Contribution Phase-out $125,000 to $140,000 $198,000 to $208,000
Backdoor/Conversion Any income No income

Note: If you wish to pursue a backdoor contribution and have other/previous Traditional IRA assets there are additional rules.


Military & Veterans

Special Rules to Remember

  • Combat zone pay is non-taxable
  • VA Disability Benefits are not included in gross income

Free Tax services

  • IRS Free File (income under $69,000)
  • Military OneSource (any)
  • Volunteer Income Tax Assistance program (income under $56,000)


Other points

‌‌The Alternative Minimum Tax (AMT) Exemption increased by $700 to $73,600 and phases out beginning at $523,600 ($114,600/$1,047,200 for married)

The Foreign Earned Income Exclusion is up $1,100 to $108,700.

The Estates Tax basic exclusion amount is up to $11,700,000.  The annual exclusion for gifts remains at $15,000.


State Taxes

There is too much individual variability to cover here, but as a point of reference here is a graphic courtesy of our friends at Visual Capitalist.

Sources

IRS provides tax inflation adjustments for tax year 2021 | Internal Revenue Service
IR-2020-245, October 26, 2020

Most taxpayers can deduct up to $300 in charitable contributions without itemizing deductions | Internal Revenue Service
COVID Tax Tip 2020-170, December 14, 2020 Following tax law changes, cash donations of up to $300 made this year by December 31, 2020 are now deductible without having to itemize when people file their taxes in 2021. The Coronavirus Aid, Relief and Economic Security Act includes several temporary …
Recovery Rebate Credit | Internal Revenue Service
Eligible individuals can claim the Recovery Rebate Credit on their 2020 Form 1040 or 1040-SR. These forms can also be used by people who are not normally required to file tax returns but are eligible for the credit. The Recovery Rebate Credit is authorized by the Coronavirus Aid, Relief, and Econom…
Is a Roth conversion right for you? | Vanguard
Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits | Internal Revenue Service
Two annual limits apply to contributions: A limit on employee elective salary deferrals. Salary deferrals are contributions an employee makes, in lieu of salary, to certain retirement plans: 401(k) plans 403(b) plans SARSEP IRA plans (Salary Reduction Simplified Employee Pension Plans) SIMPL…
Tax filing tips for military service members and veterans | Internal Revenue Service
FS-2020-03, February 2020 The Internal Revenue Service is committed to helping military members, veterans and their families meet their federal income tax filing obligations. Active duty or reserve members of the armed forces listed below may be eligible for military tax benefits. Recently retired…

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