US NEWS

What will the new IRS income tax brackets be for 2021?

The IRS announced Monday the annual inflation adjustment for tax provisions when filing for the tax year 2021 but the brackets stay the same.

What will the new IRS income tax brackets be for 2021?
CHIP SOMODEVILLA AFP

The Internal Revenue Service annually updates the taxes you pay every year to account for inflation and on Monday they released the numbers for the 2021 filing season. These new numbers take effect 1 January 2021 and do not apply to the 2020 filing season. This data can help you plan ahead for your tax liability in the coming year to avoid having a surprise bill from Uncle Sam.

The seven brackets remain the same 10%, 12%, 22%, 24%, 32%, 35% and 37% which were set after the 2017 Tax Cuts and Jobs Act. However, the tax brackets are adjusted to reflect inflation or the cost of living. This is based on the Chained Consumer Price Index created by the Bureau of Labor Statistics through continuously tracking the changing price of a basket of goods and consumer purchasing behavior in response to that change.

2021 tax brackets

The idea is to avoid “bracket creep”, when people are pushed into a higher income bracket or inflation reduces the value of other deductions or credits. So, for example instead of 10% being applied to the first $9,875 of income, it will now be applied to the first $9,950 for a taxpayer filing individually.

Also, standard deduction will increase in 2021 by $150 for single, married but filing separately and head of households and $300 for married taxpayers filing jointly. There is no change for dependents who can be claimed on someone else’s tax return the 2021 deduction remains the same. Their deduction is still the greater of $1,100 or earned income plus $350, not exceeding the regular deduction rate.

For more detailed charts and additional information check this article by Kelly Phillips Erb at Forbes.

2021 Standard deductions

  • Single filers & Married couples filing separately – $12,550
  • Married couples filing jointly – $25,100
  • Head of Household – $18,800

2021 rates by brackets

Single filers & Married couples filing separately

  • 37% for incomes over $523,601
  • 35% for incomes over $209,426
  • 32% for incomes over $164,926
  • 24% for incomes over $86,376
  • 22% for incomes over $40,526
  • 12% for incomes over $9,951
  • 10% for incomes of $9,950 or less

Married couples filing jointly

  • 37% for incomes over $628,301
  • 35% for incomes over $418,851
  • 32% for incomes over $329,851
  • 24% for incomes over $172,751
  • 22% for incomes over $81,051
  • 12% for inccomes over $19,901
  • 10% for incomes of $19,900 or less

Head of Household

  • 37% for incomes over $523,601
  • 35% for incomes over $209,401
  • 32% for incomes over $164,901
  • 24% for incomes over $86,351
  • 22% for incomes over $54,201
  • 12% for incomes over $14,201
  • 10% for incomes of $14,200 or less