2021 Tax Inflation Adjustments Summary

TAX NEWS SUMMARY FOR 2021

EMPLOYMENT TAXES:

  • Social security wage base for 2021 is $142,800
  • Additional .9% Medicare tax on wages and income from self-employment applies on singles earning over $200,000; married filing joint over $250,000; MFS over $125,000.  Employers will withhold the additional .9% when employee’s wages exceed $200,000.  Married individuals earning less than $200,000 but with combined wages to exceed $250,000 should voluntarily have more Federal tax withheld.

TAX CALCULATIONS:

Inflation adjustments are made annually to the income tax tables, deductions, many tax credits and other items to include: 

  • Standard deduction for 2021 for MFJ $25,100; $18,800 Heads of households; $12,550 for singles and MFS separate (add $1,350 for age 65 or older, or blind; add $1,700 if age 65 or older, or blind and unmarried and not a surviving spouse); For dependents who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,100 or earned income plus $350
  • Cafeteria Plan contributions for voluntary employee salary reductions to health flexible spending arrangements is limited to $2,750. 
  • Health Savings Account contributions limitations are $3,600 for self-only, under age 55; $7,200 Family, under age 55;  Plus $1,000 catch-up contributions for age 55 or older
  • Kiddie Tax (unearned income of minor children taxed as if parent's income) kicks in at $1,100
  • Tax brackets for 2021 are at the same rates as in 2020 at 10%, 12%, 22%, 24%, 32%, 35% and 37% with updated levels of taxable income in each bracket and with the highest bracket kicking in at over $523,600 (singles and head-of-household status), $628,300 (married filing joint/surviving spouses), $314,150 (married filing separately)
  • Tax Rate on Qualified Dividends and Net Capital Gain minimum tax rate of 0% for taxable income up to $40,400 for singles; $80,800 MFJ; maximum tax rate of 15% up to $445,850 for singles and $501,600 MFJ and a higher rate of 20% for filers who are over
  • Phaseout for itemized deductions /personal exemptions is suspended for tax years 2018 through 2025
  • 3.8% Medicare surtax applies on unearned income for joint filers with adjusted gross income over $250,000 and singles above $200,000, married filing separate at $125,000.  Surtax applies on the lower of net investment income (interest, dividends, capital gains, passive rental income) or excess of modified adjusted gross income over the listed thresholds.  On home sales for gains in excess of the home exclusion amounts for those filers.

 

RETIREMENT PLAN CONTRIBUTION LIMITS:

  • Elective deferral contribution limit for employees participating in 401(k), 403(b) or 457(b) plans remains at $19,500.  The catch-up contribution is $6,500 for those individuals age 50 and over.
  • IRA annual contribution limit is at $6,000 (catch-up contributions for age 50 and over remains at $1,000);  phase out range limit for singles and head of households change to modified AGI of  $66,000-$76,000; Joint filers to $105,000-$125,000 for a spouse covered by a work retirement plan and contributor not covered at work to $198,000-$208,000;

TAX CREDIT BENEFITS:

  • Child tax credit of $2,000. Up to $1,400 may be refundable. 
  • Credit for Other Dependents $500
  • Child and dependent care credit  is 20 - 35% of the smaller of: $3,000 of expenses for one dependent ($6,000 for 2 or more), Qualified expenses incurred and paid, taxpayer's earned income or spouse's earned income.
  • Earned Income Credit maximums are $543 (no children), $3,618 (1 child), $5,980 (2), $6,728 (3 or more)

BUSINESS TAX PROVISIONS:

Section 179 Expensing limitation is $1,050,000 with phase out with $2,620,000 of assets placed in service

 

ESTATE AND GIFT TAX PROVISIONS:

  • Annual Gift Tax exclusion remains at $15,000 per year per recipient
  • Estate and gift lifetime exclusion (Unified Credit against estate tax) for decedents dying during calendar year $11,700,000.