IRS Announces Income Tax Adjustments for 2021
The estate and gift tax exemptions saw the biggest increases, says Ed Slott.
The Internal Revenue Service announced Monday the tax year 2021 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes.
The Consolidated Appropriations Act for 2020 increased the amount of the minimum addition tax for failure to file a tax return within 60 days of the due date, the IRS explains.
Beginning with returns due after Dec. 31, 2019, the new additional tax is $435 or 100% of the amount of tax due, whichever is less, an increase from $330.
The $435 additional tax will be adjusted for inflation.
IRA specialist Ed Slott of Ed Slott & Co. told ThinkAdvisor that the estate and gift tax exemptions “saw the biggest increases since these are much larger amounts to begin with, so even a small COLA adjustment can add thousands here,” he said. “The 2021 transfer tax exemption (estate, gift and generation-skipping tax) is $11,700,000 per person, up from $11,580,000 in 2020, an increase of $120,000.”
The tax year 2021 adjustments generally apply to tax returns filed in 2022, and include:
- The Alternative Minimum Tax exemption amount for tax year 2021 is $73,600 and begins to phase out at $523,600 ($114,600 for married couples filing jointly, for whom the exemption begins to phase out at $1,047,200). The 2020 exemption amount was $72,900 and began to phase out at $518,400 ($113,400 for married couples filing jointly for whom the exemption began to phase out at $1,036,800).
- The standard deduction for married couples filing jointly for tax year 2021 rises to $25,100, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,550 for 2021, up $150, and for heads of households, the standard deduction will be $18,800 for tax year 2021, up $150.
- The annual exclusion for gifts is $15,000 for calendar year 2021, as it was for calendar year 2020.
- Marginal Rates: For tax year 2021, the top tax rate remains 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly). The other rates are:35% for incomes over $209,425 ($418,850 for married couples filing jointly); 32% for incomes over $164,925 ($329,850 for married couples filing jointly); 24% for incomes over $86,375 ($172,750 for married couples filing jointly); 22% for incomes over $40,525 ($81,050 for married couples filing jointly); 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
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