Understanding the 2021 Tax Brackets and Changes

As the United States enters a new year, individuals and households are likely to be affected by changes to tax brackets and deductions. The Internal Revenue Service (IRS) has announced the 2021 tax brackets, along with several key changes that will impact taxpayers. In this article, we'll break down the main updates and what they mean for you.

Retirement Plan Contributions

One of the most significant changes is the phase-out range for deductible contributions to employer retirement plans. For single individuals and heads of households, the phase-out range is $66,000 to $76,000, while married couples filing joint returns will see a phase-out range of $105,000 to $125,000. Additionally, the limitation on SIMPLE retirement accounts remains at $13,500.

Health Insurance Changes

For family coverage, the out-of-pocket expense maximum increases by $100 to $8,700, while the deductible must be at least $4,800 but no more than $7,150. For self-only coverage, the plan's annual deductible for 2021 must be at least $2,400 and no more than $3,600, with a maximum out-of-pocket expense of $4,800.

Tax Rates and Brackets

The tax rates and brackets for 2021 have been adjusted for inflation. The standard deduction for heads of households increases by $150 to $18,800, while the standard deduction for single taxpayers' individual returns and married individuals filing separately rises by $150 to $12,550. Married couples filing joint returns will see a standard deduction increase of $300 to $25,100.

Important Reminders

It's essential to note that the 2020 rules enacted during the pandemic – including those surrounding borrowing, distributions, and the waiver of Required Minimum Distributions – will not be effective in 2021 unless new legislation is passed. Additionally, taxpayers should be aware that these changes are for 2021 returns filed by taxpayers in 2022.

The IRS has announced several key changes to tax brackets and deductions for 2021. Understanding these updates can help individuals and households plan their finances accordingly. By knowing the phase-out ranges for retirement plan contributions, health insurance changes, and updated tax rates and brackets, you'll be better equipped to navigate the complexities of filing your taxes in 2022.

2021 tax brackets irs