Applicable Tax Rates, Limits, and Other Provisions for 2021

Author: Lauren Wolven

Each year, the Internal Revenue Service (IRS) announces applicable tax rates, deductions, and other provisions, including any adjustments for inflation. Pursuant to Revenue Procedure 2020-45, the following are some of the notable provisions for tax year 2021 (which will impact tax filings in 2022):

• Standard Deduction: for married couples filing jointly, the standard deduction will increase to $25,100 (up $300 from tax year 2020); for single taxpayers and married individuals filing separately, the standard deduction will increase to $12,550 (up $150 from 2020); and for heads of households, the standard deduction will increase to $18,800(up $150 from 2020).
• Marginal Tax Rates: The top tax rate will be 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly), and the other rates are as follows:
  • 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).
  • 10% for incomes of $9,950 or less ($19,900 for married couples filing jointly).
• Itemized Deductions: There continues to be no limitation on itemized deductions, as was the case for 2018-2020, pursuant to the Tax Cuts and Jobs Act.
• Basic Exclusion for Estates: The basic exclusion is $11.7 million for decedents who die in 2021 (up from $11.58 million for 2020).
• Annual Gift Exclusion: remains at $15,000.
• Credit for Adoptions: The credit for qualified adoption expenses is capped at $14,440 (up from $14,300 in 2020).

If you have any questions or would like to discuss how this impacts your estate and gift planning, please don’t hesitate to reach out to the Trusts and Estates attorneys at Levenfeld Pearlstein.