IRS Announces Income Tax Adjustments for 2021

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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