As we start off 2022, it’s important to be familiar with the latest tax legislation implemented by the Biden Administration to know how what you pay (or don’t) on April 15 could be affected.
The Internal Revenue Service (IRS) will start accepting 2021 returns on Monday, Jan. 24, so here’s an overview of what you need to know in case you’re looking to submit sooner rather than later.
The tax change that affected the largest number of taxpayers was easily the expanded Child Tax Credit, which increased from $2,000 per child to $3,000 for most children, but up to $3,600 for children under six years of age. There’s a phaseout that begins at $150,000 for the married filing jointly taxpayer category. Another change is that the credit is fully refundable and not limited to pre-credit tax liability.
Tax rates did not change in 2021, but tax brackets did widen. See below for updated margins.
|Tax Rate||Taxable Income (Single)||Taxable Income (Married Filing Jointly)||Taxable Income (Head of Household)|
|10%||Up to $9,950||Up to $19,900||Up to $14,200|
|12%||$9,951 to $40,525||$19,901 to $81,050||$14,201 to $54,200|
|22%||$40,526 to $86,375||$81,051 to $172,750||$54,201 to $86,350|
|24%||$86,376 to $164,925||$172,751 to $329,850||$86,351 to $164,900|
|32%||$164,926 to $209,425||$329,851 to $418,850||$164,901 to $209,400|
|35%||$209,426 to $523,600||$418,851 to $628,300||$209,401 to $523,600|
|37%||Over $523,600||Over $628,300||Over $523,600|
After allowing seniors to skip required minimum distributions (RMDs) in 2020, RMDs are back for 2021. RMDs act as a safeguard against people using a retirement account to avoid paying taxes.
Most key dollar limits on pension plans remained the same in 2021. Maximum limits on 401(k) plans held steady at $19,500, while taxpayers born before 1972 can add a “catch up” of $6,500. Traditional IRA contribution limits remain at $6,000 for taxpayers under 50 years of age and $7,000 for taxpayers over 50. Additionally, Simple IRAs remain capped at $13,500 and $16,500, respectively.
For 2021, there is no change in capital gains rates, although the brackets have slightly widened.
|Taxable Income (Single)||Taxable Income
(Married Filing Separate)
(Head of Household)
(Married Filing Jointly)
|0%||Up to $40,400||Up to $40,400||Up to $54,100||Up to $80,800|
|15%||$40,401 to $445,850||$40,401 to $250,800||$54,101 to $473,750||$80,801 to $501,600|
|20%||Over $445,850||Over $250,800||Over $473,750||Over $501,600|
The standard deduction amounts were increased for 2021 with married couples who filed jointly getting $25,100 deduction, plus $1,350 for each spouse 65 or older. Single filers receive a $12,550 standard deduction ($14,250 if they’re at least 65 years old), and head-of-household filers get $18,800, plus an additional $1,700 once they reach age 65.
For 2020, unemployment compensation – up to $20,400 (married filing jointly) and up to $10,200 (single filers) – was exempt from taxes if your modified AGI was less than $150,000, but that ended with the new year. For the 2021 tax year, unemployment compensation will once again be fully taxable.
For 2020, an “above the line” contribution of $300 could be deducted for married filing jointly filers. For 2021, a $300 contribution deduction is now permitted for each spouse when married filing jointly. For those itemizing in 2020, the 60% limit on charitable deductions was suspended. The suspension carries forward to 2021.
The lifetime estate and gift tax exemption increased from $11,580,000 to $11,700,000 per individual in 2021. The gift tax exclusion remains at $15,000 per recipient.
The annual wage base for social security in 2021 increased from $137,700 to $142,800. The nanny tax threshold also increased from $2,200 in 2020 to $2,300 in 2021.
The 2021, standard mileage rates decreased from 57.5¢ per mile to 56¢. The medical mileage allowance also decreased from 17¢ to 16¢ per mile.
The newly released Bipartisan Infrastructure Investment and Jobs Act addresses provisions related to federal-aid highway, transit, highway safety, motor carrier, hazardous materials research, and rail programs of the Department of Transportation.
Now, let’s see what changes the 2022 tax year could have in store. For questions about your 2021 tax return, contact the experts at SST today.