Download PDF Table of Contents Tax Brackets & Rates Standard Deduction & Personal Exemption Alternative Minimum Tax Earned Income Tax Credit Child Tax Credit Capital Gains Qualified Business Income Deduction Annual Exclusion for Gifts Related Resources How is Tax Liability Calculated? Why Do I Get a Tax Refund? 2020 Tax Brackets 2021 State Individual Income Tax Rates and Brackets Does My State Have a Marriage Penalty? 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] 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 Rate For Single Individuals For Married Individuals Filing Joint Returns For Heads of Households 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% $523,601 or more $628,301 or more $523,601 or more Source: Internal Revenue Service 2021 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 2021 Alternative Minimum Tax 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 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 Exemption Phaseout Thresholds Filing Status Threshold Unmarried Individuals $523,600 Married Filing Jointly $1,047,200 Source: Internal Revenue Source 2021 Earned Income Tax Credit The maximum Earned Income Tax Credit in 2021 for single and joint filers is $543, if the filer has no 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. All these are relatively small increases from 2020. 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 $7,100 $10,640 $14,950 $14,950 Maximum Credit $543 $3,618 $5,980 $6,728 Phaseout Begins $8,880 $19,520 $19,520 $19,520 Phaseout Ends (Credit Equals Zero) $15,980 $42,158 $47,915 $51,464 Married Filing Jointly Income at Max Credit $7,100 $10,640 $14,950 $14,950 Maximum Credit $543 $3,618 $5,980 $6,728 Phaseout Begins $14,820 $25,470 $25,470 $25,470 Phaseout Ends (Credit Equals Zero) $21,920 $48,108 $53,865 $57,414 Source: Internal Revenue Source 2021 Child Tax Credit The child tax credit totals at $2,000 per qualifying child and is not adjusted for inflation. However, the refundable portion of the Child Tax Credit is adjusted for inflation but will remain at $1,400 for 2021. 2021 Capital Gains Tax Rates & Brackets (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 2021 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 2021 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. [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.
