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What Are the New Tax Brackets for 2021?

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Every year, the IRS makes various inflation-related adjustments to the U.S. tax code. As a result, even though there aren't any significant changes to the tax law, the tax brackets likely change.

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We still have more than a month left in 2020, but the IRS has already published a breakdown of the marginal income tax rates for 2021. The seven tax rates are constant, but the income limits have been adjusted for inflation. Here are the U.S. federal income tax brackets for 2021.

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Source: istock
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When did the IRS provide the new tax brackets for 2021?

On Oct. 26, the IRS released the new tax brackets for 2021 based on the filing status and income. The new rates are listed below. 

For individual single taxpayers:

  • 10 percent for income up to $9,950
  • 12 percent for income between $9,950 and $40,525 
  • 22 percent for income between $40,525 and $86,375 
  • 24 percent for income between $86,375 and $164,925 
  • 32 percent for income between $164,925 and $209,425 
  • 35 percent for income between $209,425 and $523,600 
  • 37 percent for income over $523,600 
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For married couples filing jointly:

  • 10 percent for income up to $19,900 
  • 12 percent for income between $19,900 and $81,050 
  • 22 percent for income between $81,050 and $172,750
  • 24 percent for income between $172,750 and $329,850
  • 32 percent for income between $329,850 and $418,850
  • 35 percent for income between $418,850 and $628,300
  • 37 percent for income over $628,300

For married couples filing separately:

  • 10 percent for income up to $9,950 
  • 12 percent for income between $9,950 and $40,525 
  • 22 percent for income between $40,525 and $86,375
  • 24 percent for income between $86,375 and $164,925
  • 32 percent for income between $164,925 and $209,425
  • 35 percent for income between $209,425 and $314,150
  • 37 percent for income over $314,150
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When do the changes take effect?

The new tax brackets for 2021 will be used to prepare your tax returns in 2022. In the U.S., individuals usually have to file their annual tax return by Apr. 15 of the year following the reportable earnings. In 2020, the deadline for filing taxes was extended to July 15 amid the coronavirus pandemic.

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Did the standard deduction change in 2021?

The IRS has increased the standard deviation for 2021. For individual single taxpayers and married couples filing separately, the standard deduction increased to $12,550, which is an increase of $150 from 2020. For married couples filing jointly, the standard deduction increased to $25,100, which is an increase of $300 from 2020.

How did the brackets change in 2021?

Every year, the IRS adjusts the income tax brackets for inflation. The tax bracket limits have been adjusted by approximately 1 percent for 2021 compared to the 2020 levels.

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What are the capital gains in 2021?

  • In 2021, individual single taxpayers won’t pay any capital gains tax if their taxable income is up to $40,400. The tax rate increases to 15 percent on capital gains if their taxable income is between $40,401 and $445,850. Above that taxable income level, the capital gains tax rate jumps to 20 percent.
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  • In 2021, married couples filing separately won’t pay any capital gains tax if their taxable income is up to $40,400. The tax rate increases to 15 percent on capital gains if their taxable income is between $40,401 and $250,800. Above that taxable income level, the capital gains tax rate jumps to 20 percent.
  • In 2021, married couples filing jointly won’t pay any capital gains tax if their taxable income is up to $80,800. The tax rate increases to 15 percent on capital gains if their taxable income is between $80,801 and $501,600. Above that taxable income level, the capital gains tax rate jumps to 20 percent.

Will there be income phase-outs in 2021?

Yes, there will be income phase-outs in 2021. There are many different income phase-outs for education tax benefits, including American Opportunity Tax Credit, Lifetime Learning Tax Credit, and Student Loan Interest Deduction.

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