Here’s what you’ll owe next year

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    The year 2021 looks very similar to 2020, at least in terms of taxes.

    The IRS released its inflation adjustments to federal income tax rates and brackets for 2021. While these changes are unlikely to have much of an impact on your bottom line, there are a few things to keep in mind.

    Since these are the tax rates for 2021, they determine your tax burden, which will be due in 2022. You will use the 2020 tax rates and parentheses when filing your taxes on or before May 17, 2021. This is due 32 days later than usual to extend the tax period.

    How the tax brackets will collapse in 2021

    There are seven tax brackets, ranging from 10% to 37%. The tax brackets 2020 and 2021 are made up as follows:

    Unmarried persons

    Tax classTaxable income for 2020 (used if filing in 2021)Taxable Income for 2021 (used when filing in 2022)
    10%Up to $ 9,875Up to $ 9,950
    12%$ 9,875 billion to $ 40,125 billion$ 9,950 to $ 40,525
    22%$ 40,125 to $ 85,525$ 40,525 to $ 86,375
    24%$ 85,525 to $ 163,300$ 86,375 to $ 164,925
    32%$ 163,300 to $ 207,350$ 164,925 to $ 209,425
    35%$ 207,350 to $ 518,400$ 209,425 to $ 523,600
    37%Over $ 518,400About $ 523,600

    Married individuals filing together or surviving spouses

    Tax classTaxable income for 2020 (used if filing in 2021)Taxable Income for 2021 (used when filing in 2022)
    10%Up to $ 19,750Up to $ 19,900
    12%$ 19,750 to $ 80,250 billion$ 19,900 to $ 81,050
    22%$ 80,250 to $ 171,050$ 81,050 to $ 172,750
    24%$ 171,050 to $ 326,600$ 172,750 to $ 329,850
    32%$ 326,600 to $ 414,700 billion$ 329,850 to $ 418,850
    35%$ 414,700 to $ 622,050 billion$ 418,850 to $ 628,300
    37%About $ 622,050Over $ 628,300

    Heads of household

    Tax classTaxable income for 2020 (used if filing in 2021)Taxable Income for 2021 (used when filing in 2022)
    10%Up to $ 14,100Up to $ 14,200
    12%$ 14,100 to $ 53,700 billion$ 14,200 to $ 54,200
    22%$ 53,700 to $ 85,500$ 54,200 to $ 86,350
    24%$ 85,500 to $ 163,300$ 86,350 to $ 164,900
    32%$ 163,300 to $ 207,350$ 164,900 to $ 209,400
    35%$ 207,350 to $ 518,400$ 209,400 to $ 523,600
    37%Over $ 518,400About $ 523,600
    Pro tip

    Not sure of your registration status? This interactive IRS quiz can help you determine the right status. If you qualify for more than one, you’ll find out which one gives the lowest tax burden.

    Tax rates apply to income in each bracket. So if you are an unmarried individual with taxable income of $ 50,000, you are not paying Uncle Sam 22% of that $ 50,000.

    According to the 2021 tax brackets (which you will use to return next year), you would pay:

    • 10% on the first $ 9,950
    • 12% off the next $ 30,575 ($ 40,525 – $ 9,950 = $ 30,575)
    • 22% off the next $ 9,475 ($ 50,000 – $ 40,525 = $ 9,475)

    2 tax changes that could affect you in 2021

    The changed tax brackets are not the only changes for 2021. Around 60 tax provisions were adjusted in the new year. Some highlights:

    • The standard deduction will increase slightly: For 2020, the standard deduction is $ 12,400 for single applicants and those who are married and filing separately. In 2021, it will increase by $ 150 to $ 12,550 for individual taxpayers. For those who are married and filing together, the standard deduction increases by $ 300 from $ 24,800 in 2020 to $ 25,100 in 2021.
    • Some limited income families may receive an additional $ 68. The maximum earned income tax credit will increase from $ 6,660 in 2020 to $ 6,728 in 2021. You need at least three children to qualify for the maximum amount.

    3 tax rules that won’t change in 2021

    • The IRA contribution limits do not change. The traditional IRA and Roth IRA contribution limits remain at $ 6,000 for those under the age of 50. The additional $ 1,000 catch-up fee that the IRS and people 50 and older can make does not change either. You can fund your IRA for 2020 through tax day May 17, 2021.
    • 401 (k) contribution limits do not change either: If you have an employer-sponsored deferred tax plan, such as a 401 (k) or 403 (b), your maximum contribution in 2021 is still $ 19,500, even staying at $ 6,500.
    • There is no limit to individual prints. The Tax Cuts and Jobs Act of 2017 removed these limits.

    Ready to start your tax preparation for 2021?

    When you’re ready to dive into your taxes, check out this comprehensive round-up of 2021 tax changes courtesy of the IRS.

    Even if you are not ready to move to tax planning mode 2021, keep in mind that this is a good time to review your tax withholding and make adjustments if necessary. Just make sure to submit your return or request an extension by May 17th. If you can’t afford your 2020 tax bill, it’s important that you file a tax return anyway and request an IRS payment plan.

    Robin Hartill is a certified financial planner and senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advisory column. Send your tricky money questions to [email protected]



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