Deductions and Taxes for the 2021 Tax Year
Every year the IRS adds, removes, or changes deductions and credits programs. It’s a good idea to plan your taxes ahead of time so you’re not surprised when you file your taxes. It allows you flexibility so if something does happen, you’re prepared. If you have questions about these changes that pertain to your situation, call America’s Choice Tax Relief for a free consultation for our tax preparation services. We discuss your finances in detail and make the most out of the deductions and refunds that apply to your income.
Here are a few notable changes that the IRS started since the 2020 tax year. These changes apply to the 2021 tax year when you file in 2022.
Standard Deduction
A standard deduction is a fixed dollar amount that reduces your taxable income. It’s the most common deduction taxpayers claim on their taxes. It’s a general deduction that saves you time and avoids hoarding receipts for an itemized deduction.
The standard deduction amount depends on your filing status. In 2021, the taxable income cap has increased compared to 2020. Make note of your taxable income for 2021 so you know what to expect this coming year. Note that the standard deduction amount is also increased from 2020.
2021 Taxable Income Brackets and Rates
| Rate | Singles | Married (Filing jointly) | Married (separately) | Head of Household |
|---|---|---|---|---|
| 10% | $0-$9,950 | $0-19,900 | $0-$9,950 | $0-$14,200 |
| 12% | $9,951-$40,525 | $19,901-$81,050 | $9,951-$40,525 | $14,201-$54,200 |
| 22% | $40,526-$86,375 | $81,051-$172,750 | $40,526-$86,375 | $54,201-$86,350 |
| 24% | $86,376-$164,925 | $172,751-$329,850 | $86,376-$164,925 | $86,351-$164,900 |
| 32% | $164,926-$209,425 | $329,851-$418,850 | $164,926-$209,425 | $164.901-$209,400 |
| 35% | $209,426-$523,600 | $418,851-$628,300 | $209,426-$314,150 | $209,401-$523,600 |
| 37% | $523,601 or More | $628,301 or More | $314,151 or More | $523,601 or More |
2020 Taxable Income Brackets and Rates
| Rate | Singles | Married (Filing jointly) | Married (separately) | Head of Household |
|---|---|---|---|---|
| 10% | $0-$9,875 | $0-19,750 | $0-$9,875 | $0-$14,100 |
| 12% | $9,876-$40,125 | $19,901-$81,050 | $9,951-$40,525 | $14,101-$53,700 |
| 22% | $40,126-$85,525 | $80,251-$171,050 | $40,126-$85,525 | $53,701-$85,500 |
| 24% | $85,526-$163,300 | $171,051-$326,600 | $85,526-$163,300 | $85,501-$163,300 |
| 32% | $163,301-$207,350 | $326,601-$414,700 | $163,301-$207,350 | $163.301-$207,350 |
| 35% | $207,351-$518,400 | $414,701-$622,050 | $207,351-$311,025 | $207,351-$518,400 |
| 37% | $518.401 or More | $622,051 or More | $311,026 or More | $518,401 or More |
Deduction Differences
| Filing Status | 2020 Standard Deduction | 2021 Standard Deduction Amount |
|---|---|---|
| Single | $12,400 | $12,550 |
| Married (Jointly) | $24,800 | $25,100 |
| Married (Separately) | $12,400 | $12,550 |
| Head of Household | $18,650 | $18,800 |
Charitable Donations
If you’re an avid charity donator, you may deduct charitable cash donations up to 100% of your Annual Gross Income (AGI). This is only applicable if you itemize your deductions. Otherwise, you may only claim up to $300 in deductions for single/married filing separately and $600 for a married filing jointly tax return in the 2020 and 2021 tax year.
Student Loans
In 2020, student loan payments were frozen and the interest rate was set to 0% to relieve students from paying their loans during the pandemic. However, if you were legally obligated to pay interest or have paid interest in 2020, you may claim a deduction of $2500.
In 2021, the deduction still applies, but September 30, 2021, was the final day for the payment suspension and 0% interest rate.
2021 Tax Year Credit Changes
Tax credits reduce the taxes you owe, while deductions reduce your taxable income. Tax credits are usually applied to those with low- or moderate-income earners, but they may also be used as incentives by the government to direct specific behaviors. One example is the electric vehicle tax credit. Although a nonrefundable tax credit, it gives taxpayers up to $7,500 to apply to their tax bill.
There are 3 types of credits: Refundable, partially refundable, and nonrefundable. Each has different qualifications and applies to your tax filing differently.
Child Tax Credit
In 2020, the Child Tax Credit was $2,000 per child. In 2021, it jumped to $3,600 for each child under six years old and $3,000 for each child between six and seventeen years old. If you have a child, you should be receiving a stimulus check from the IRS per month — $300 per child under 6 and $250 per child 6-17 years old.
Saver’s Credit
This allows you to claim up to $1,000 or $2,000 (if filing jointly) in tax credit depending on how much you contribute to your retirement account and your AGI (Adjust Gross Income).
2021 Saver's Credit
| Credit Rate | Married (Filing jointly) | Head of Household | All Other Filers |
|---|---|---|---|
| 50% of your contribution | AGI not more than $39,500 | AGI not more than $29,625 | AGI not more than $19,750 |
| 20% of your contribution | $39,500 - $43,000 | $29,626 - $32,250 | $19,751 - $21,500 |
| 10% of your contribution | $43,001 - $66,000 | $32,251 - $49,500 | $21,501 - $33,000 |
| 0% of your contribution | More than $66,000 | More than $49,500 | More than $33,000 |
2020 Saver's Credit
| Credit Rate | Married (Filing jointly) | Head of Household | All Other Filers |
|---|---|---|---|
| 50% of your contribution | AGI not more than $39,000 | AGI not more than $29,250 | AGI not more than $19,500 |
| 20% of your contribution | $39,001 - $42,500 | $29,251 - $31,875 | $19,501 - $21,250 |
| 10% of your contribution | $42,501 - $65,000 | $31,876 - $48,750 | $21,251 - $32,500 |
| 0% of your contribution | More than $65,000 | More than $48,750 | More than $32,500 |
Earned Income Tax Credit
EITC is a tax break for low- to moderate-income earners. This reduces the amount they would owe and increase their refund. To qualify for EITC you must be an American citizen, have a valid SSN, file as single, married (jointly), head of household, or qualifying widow/widower. You cannot qualify if you are married but file separately. The max credit for those without children is $1,502 and those with children can claim up to $6,728.
Want To Learn if You Qualify for These Deductions and Credits?
There are more IRS and state deductions and credits that you may qualify for. America’s Choice Tax Relief offers a free consultation to analyze your tax situation. We will give you a thorough breakdown of what you do and do not qualify for and provide you with a better understanding of tax breaks.