There have been several major tax law changes over the past few years with staggered effective dates. These laws have significantly changed the way you may want to consider your financial situation, especially retirement planning. Here is some information that you find helpful:

Income Tax Rate Schedules for 2021

Single Return Rate Schedule
Taxable income levels Tax rate
0 to $9,950 10%
$9,951 to $40,525 12%
$40,526 to $86,375 22%
$86,376 to $164,925 24%
$164,926 to $209,425 32%
$209,426 to $523,600 35%
Over $523,601 37%
Married Filing Jointly Rate Schedule
Taxable income levels Tax rate
0 to $19,900 10%
$19,901 to $81,050 12%
$81,051 to $172,750 22%
$172,751 to $329,850 24%
$329,851 to $418,850 32%
$418,851 to $628,300 35%
Over $628,301 37%

 

2021 Standard Deduction
Married couples filing a joint return - $25,550
Single return filers - $12,550

 

2021 Personal Exemption Amount
$0 – Personal exemptions were eliminated as of 1/1/18

 

2021 Taxation of Dividends and Long Term Capital Gains

Long term capital gains and qualifying dividends receive favorable tax treatment, based on taxable income levels.

Tax rate on long term capital
gains and qualifying dividends
Taxable income levels
for those filing individual returns
Taxable income levels
for those filing joint returns
0% Up to $40,400 Up to $80,800
15% $40,401 to $445,850 $80,801 to $501,600
20% Over $445,880 Over $501,600

 

2021 Medicare Surtaxes

As part of the health care reform enacted in 2010, additional Medicare surtaxes began in 2013 for high income wage earners and high income investors. The surtaxes apply when a single taxpayer’s Modified Adjusted Gross Income (MAGI) exceeds a threshold of $200,000 or joint return filers when their MAGI exceed $250,000.

  • For wage earners, an additional 0.9% Medicare surtax applies to wages (including bonuses and self-employment income) above the threshold amounts.
  • For investors, an additional 3.8% Medicare surtax applies to net investment income (taxable interest, dividends, capital gains, etc.) in excess of the thresholds.

Other Significant Income Tax Changes Effective 1/1/18

  • Passthrough income deduction – Individuals can deduct 20% of qualified business income from partnerships, S corporations or a sole proprietorship. This rule can be complicated and you may want to consult your tax advisor.
  • Mortgage interest – Interest can be deducted on up to $750,000 of on new acquisition mortgages, down from the old limit of $1 million. Beginning in 2018, no interest on home equity loans can be deducted.
  • State and local taxes – Beginning in 2018, the limit on all state and local income, property and sales taxes is $10,000.

Estate Taxes

Year Estate Size Where Taxation Starts Top estate tax rate
2021 $11,700,000 40%
2021 Indexed for inflation 40%

 

Regular IRA and Roth IRA Contribution Limits

For tax year IRA contribution limit Additional contribution limits
for those age 50 and over
2021 $6,000 $1,000

 

401(k) Retirement Plan Contribution Limits

For tax year 401(k) deferral limit Additional contribution limits
for those age 50 and over
2021 $19,500 $6,500

 

Education (or Coverdell) IRAs

For 2021, the annual contribution limit is $2000 with eligibility phase out beginning at $190,000 (for married filing jointly) and $95,000 (for individual filers) of Adjusted Gross Income (some modifications apply).

Annual Gift Tax Exclusion

For 2021, gifts of $15,000 and under are not subject to gift tax.

2021 Payroll Taxes – Social Security and Medicare

2021 Employee wages subject to Social Security tax of 6.2% up to $137,700.

2021 Employee wages subject to Medicare tax of 1.45% on all wages and an additional 0.9% on wages above $200,000 for taxpayers filing single returns. For taxpayers filing joint returns, the additional 0.9% applies to wages above $250,000.

2021 Self-employment income subject to Social Security tax of 12.4% up to $137,700.

2021 Self-employment income subject to Medicare tax of 2.9% on all self-employment income and an additional 0.9% on wages above $200,000 for taxpayers filing single returns. For taxpayers filing joint returns, the additional 0.9% applies to wages above $250,000.

2021 Social Security Benefits

2021 Average monthly benefit for all retired workers - $1.543.

2021 Average monthly benefit for retired couples - $2,596.

2021 Maximum monthly benefit for a worker at full retirement age - $3,011.