Important 2021 Changes: Inflation Adjustments and Tax Tables

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On October 26th, 2020, the IRS issued the inflation adjustments and tax rate tables for 2021 (Rev. Proc. 220-45). These adjustments and tax rates will apply to individual, estate, and trust returns for tax year 2021.

What Do You Need to Know?

The standard deduction has been increased to the following for each filing status:

  • $25,100 for married individuals filing joint returns or surviving spouses
  • $18,800 for heads of household
  • $12,550 for unmarried individuals (other than surviving spouses) and married individuals filing separate returns

The maximum amount for several tax credits has also increased. These are a few of the most notable updates/changes.

  • The earned income tax credit (for taxpayers with three or more children) will increase to $6,728
  • The adoption credit will increase to $14,440 (which is also the maximum amount that will be excludable from an employee’s gross income for qualified amounts paid or expenses incurred by an employer under an adoption-assistance program)

Other Notable Adjustments Include:

  • The Sec. 179 amount for tax years beginning in 2021 will be $1,050,000 with a phaseout threshold of $2,620,000
  • The qualified business income threshold under Sec. 199A(e)(2) will increase to the following:
    ? $329,800 for married individuals filing joint returns
    ? $164,925 for married individuals filing separate returns
    ? $164,900 for single individuals and heads of household
  • The basic exclusion amount for determining the unified credit against the estate tax will be $11,700,000 for decedents dying in calendar year 2021
  • The annual gift tax exclusion amount remains $15,000

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