IRS Announces 2021 Tax Brackets, Saver’s Credit Eligibility Limits
At long last, the end of 2020 is now in sight. Ahead of 2021’s arrival, this week the Internal Revenue Service revealed a number of changes that will impact the 2021 tax year. This includes making inflation adjustment to key parts of the tax code including marginal tax rate brackets, the standard deduction, IRA contribution deduction eligibility limits, and more.
First up, the new year will bring modest adjustments to income limits for all seven current tax brackets. For example, the limit for the 10% tax tier will climb by $75 to $9,950 for individuals and rise by $150 to $19,900 for married couples filing jointly. On the other end, the 37% marginal tax rate will now kick in at $523,600 in income for individuals and $628,300 for married couples filing jointly — increases of $5,200 and $6,250 respectively.
Here’s a look at all of the 2021 marginal tax brackets compared to 2020:
|Rate||2021 Individuals||2020 Individuals||2021 Married Filing Jointly||2020 Married Filing Jointly|
|10%||Up to $9,950||Up to $9,875||Up to $19,900||Up to $19,750|
|12%||$9,951 to $40,525||$9,876 to $40,125||$19,901 to $81,050||$19,751 to $80,251|
|22%||$40,526 to $86,375||$40,126 to $85,525||$81,051 to $172,750||$80,251 to $171,050|
|24%||$86,376 to $164,925||$85,526 to $163,300||$172,751 to $329,850||$171,051 to $326,600|
|32%||$164,926 to $209,425||$163,301 to $207,350||$329,851 to $418,850||$326,601 to $414,700|
|35%||$209,426 to $523,600||$207,351 to $518,400||$418,851 to $628,300||$414,701 to $622,050|
|37%||Over $523,600||Over $518,400||Over $628,300||Over $622,050|
Along with the bracket adjustments, the IRS has also announced increases for the standard deduction. Next year, the standard deduction for single filers will rise to $12,550 — up $150 from the current year. Meanwhile married couples filing jointly can claim a standard deduction of $25,100 (up $300) and those filing as heads of households can claim $18,800 (a $150 increase).
The IRS is also making changes to the income ranges it uses to determine if IRA contributions are eligible for deductions. For 2021, single filers who are covered by a workplace retirement plan will see traditional IRA contribution deductions phase-out between $66,000 and $76,000 — up $1,000 from the 2020 phase-out range. Married couples filing jointly where a spouse is making IRA contributions and is covered by a workplace retirement plan, the phase-out range also climbs $1,000: $105,000 to $125,000. However, IRA contributors who are not covered by a workplace retirement plan but married to someone who is will see phase-out ranges of $198,000 and $208,000, which is up $2,000. As for Roth IRAs, the phase-out range for making contributions will be $125,000 to $140,000 for single filers (up $1,000) and $198,000 to $208,000 for married couples filing jointly (up $2,000).
Finally, the Saver’s Credit that rewards low and mid-range income earners for contributing to retirement accounts will also adjust its limits for 2021. The new cap will be $66,000 for married couple filing jointly (up $1,000), $49,500 for heads of households (up $750), and $33,000 for single filers (up $500). Notably, these limits are when the credit is completely phased out, although different limits will apply for the program’s 50%, 20% and 10% credit tiers.
Although the 2021 tax year doesn’t look tremendously different from 2020, subsequent years could of course be impacted by the results of next week’s election. While these basic tax brackets and the increased standard deduction were the result of 2017’s Tax Cuts and Jobs Act, Democrats have never been a fan of that bill and could seek to pass a replacement if their party manages to win the White House, flip the Senate, and retain control of the House. In the meantime, these latest adjustments are good news for taxpayers — and especially retirement savers — as we head into a new year.