October 27, 2020 2021 Tax Brackets Amir El-Sibaie Amir El-Sibaie Download Data Print this page Download Data Subscribe Support our work On a yearly basis the IRS adjusts more than 40 tax provisions for inflation. This is done to prevent what is called “bracket creep,” when people are pushed into higher income tax brackets or have reduced value from credits and deductions due to inflation, instead of any increase in real income. The IRS used to use the Consumer Price Index (CPI) as a measure of inflation prior to 2018.[1] However, with the Tax Cuts and Jobs Act of 2017, the IRS now uses the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.[2] These inflation adjustments are for tax year 2021, for which taxpayers will file tax returns in early 2022. Note that the Tax Foundation is a 501(c)(3) educational nonprofit and cannot answer specific questions about your tax situation or assist in the tax filing process. 2021 Federal Income Tax Brackets and Rates 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. 2021 Federal Income Tax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households Tax Rate For Single Filers, Taxable Income For Married Individuals Filing Joint Returns, Taxable Income For Heads of Households, Taxable Income 10% Up to $9,950 Up to $19,900 Up to $14,200 12% $9,951 to $40,525 $19,901 to $81,050 $14,201 to $54,200 22% $40,526 to $86,375 $81,051 to $172,750 $54,201 to $86,350 24% $86,376 to $164,925 $172,751 to $329,850 $86,351 to $164,900 32% $164,926 to $209,425 $329,851 to $418,850 $164,901 to $209,400 35% $209,426 to $523,600 $418,851 to $628,300 $209,401 to $523,600 37% Over $523,600 Over $628,300 Over $523,600 Source: Internal Revenue Service Help Us Learn More About How Americans Understand Their Taxes Please take our quick, anonymous survey, conducted in partnership with the University of North Carolina Tax Center. Take Survey Standard Deduction and Personal Exemption The standard deduction for single filers will increase by $150 and by $300 for married couples filing jointly (Table 2). The personal exemption for 2021 remains eliminated. 2021 Standard Deduction Filing Status Deduction Amount Single $12,550 Married Filing Jointly $25,100 Head of Household $18,800 Source: Internal Revenue Source Alternative Minimum Tax (AMT) The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two. The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent. The AMT exemption amount for 2021 is $73,600 for singles and $114,600 for married couples filing jointly (Table 3). 2021 Alternative Minimum Tax Exemptions Filing Status Exemption Amount Unmarried Individuals $73,600 Married Filing Jointly $114,600 Source: Internal Revenue Service In 2021, the 28 percent AMT rate applies to excess AMTI of $199,900 for all taxpayers ($99,950 for married couples filing separate returns). AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2021, the exemption will start phasing out at $523,600 in AMTI for single filers and $1,047,200 for married taxpayers filing jointly (Table 4). 2021 Alternative Minimum Tax (AMT) Exemption Phaseout Thresholds Filing Status Threshold Unmarried Individuals $523,600 Married Filing Jointly $1,047,200 Source: Internal Revenue Source Earned Income Tax Credit (EITC) The maximum Earned Income Tax Credit (EITC) in 2021 for single and joint filers is $1502, if the filer has no qualifying children (Table 5). The maximum credit is $3,618 for one child, $5,980 for two children, and $6,728 for three or more children. The credit for filers without qualifying children was significantly expanded for tax year 2021 in the American Rescue Plan Act (ARPA) enacted in March 2021. 2021 Earned Income Tax Credit Parameters Filing Status No Children One Child Two Children Three or More Children Single or Head of Household Income at Max Credit $9,820 $10,640 $14,950 $14,950 Maximum Credit $1502 $3,618 $5,980 $6,728 Phaseout Begins $11,610 $19,520 $19,520 $19,520 Phaseout Ends (Credit Equals Zero) $21,430 $42,158 $47,915 $51,464 Married Filing Jointly Income at Max Credit $9,820 $10,640 $14,950 $14,950 Maximum Credit $1502 $3,618 $5,980 $6,728 Phaseout Begins $17,550 $25,470 $25,470 $25,470 Phaseout Ends (Credit Equals Zero) $27,380 $48,108 $53,865 $57,414 Source: Internal Revenue Source Child Tax Credit The American Rescue Plan Act (ARPA) enacted in March 2021 significantly expanded the Child Tax Credit in several ways. The expansion expires after 2021. The Child Tax Credit (CTC) is $3,000 for children 6 and older and $3,600 for children under 6. Half the credit will be advanced to families monthly, at $250/month for older children and $300/month for younger children, while the other half will be received on tax returns. It is fully available and refundable to households with no income, unlike the Child Tax Credit’s former design. The changes only apply to tax year 2021. Capital Gains Tax Rates (Long-Term Capital Gains) Long-term capital gains are taxed using different brackets and rates than ordinary income. 2021 Capital Gains Tax Rates & Brackets (Long-Term Capital Gains) For Unmarried Individuals, Taxable Income Over For Married Individuals Filing Joint Returns, Taxable Income Over For Heads of Households, Taxable Income Over 0% $0 $0 $0 15% $40,400 $80,800 $54,100 20% $445,850 $501,600 $473,750 Source: Internal Revenue Source Qualified Business Income Deduction (Sec. 199A) The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $164,900 of qualified business income for unmarried taxpayers and $329,800 for married taxpayers (Table 7). 2021 Qualified Business Income Deduction Thresholds Filing Status Threshold Unmarried Individuals $164,900 Married Filing Jointly $329,800 Source: Internal Revenue Source Annual Exclusion for Gifts In 2021, the first $15,000 of gifts to any person are excluded from tax. The exclusion is increased to $159,000 for gifts to spouses who are not citizens of the United States. See New Tax Brackets Confused? Boost Your Tax Knowledge with TaxEDU Everyone can benefit from learning more about the taxes we pay and their impact on the world around us. Unfortunately, tax policy can be complex. Our goal is to make sure understanding it isn’t. Launch TaxEDU [1] Internal Revenue Service, “Revenue Procedure 2020-45,” https://www.irs.gov/pub/irs-drop/rp-20-45.pdf. [2] Robert Cage, John Greenlees, and Patrick Jackman, “Introducing the Chained Consumer Price Index,” U.S. Bureau of Labor Statistics, May 2003, https://www.bls.gov/cpi/additional-resources/chained-cpi-introduction.pdf. Banner image attribution: 1040 tax form lies near hundred dollar bills and blue pen on a light blue background. US Individual income tax return. Topics Center for Economic Analysis Center for Federal Tax Policy Alternative Minimum Tax (AMT) Business Tax Expenditures, Credits, and Deductions Business Taxes Data Individual and Consumption Taxes Individual Capital Gains and Dividends Taxes Individual Income and Payroll Taxes Individual Tax Expenditures, Credits, and Deductions Tags Child Tax Credit (CTC) Earned Income Tax Credit (EITC)