Page 14 - Supplement to Income Tax TY2021

Estimating Your 2021 Taxes

Defined contribution plans and pension plans (pages Non-Retirement Cost-of-Living
718–724). The overall limitation on employee and Adjustments for 2021
employer contributions (including forfeitures) to a
defined contribution plan (such as a self-employed Standard deduction amounts (pages 343-346). The
profit-sharing SEP or Keogh) is $58,000 (up slightly basic standard deduction amounts for 2021 have
increased slightly to $25,100 for married couples filing
from $57,000 in 2020). The general limitation on the jointly and surviving spouses, $18,800 for heads of
annual benefit from a defined benefit pension plan is households, and $12,550 for singles and married persons
unchanged at $230,000.
filing separately. The additional standard deduction for
Compensation limit (pages 192, 720–721). The taxpayers age 65 or older or blind (Your Income Tax
maximum amount of compensation that can be taken 2021, page 347) at the end of 2021 is $1,700 for single
into account when applying the contribution limits taxpayers and heads of households (up from $1,650 in
for qualified defined contribution and pension plans 2020) and $1,350 for married persons (whether filing
is $290,000 (up from $285,000 in 2020). jointly or separately) and qualifying widows/widowers
(up from $1,300 in 2020).
SEP eligibility (page 246). Employees meeting the age For a person who meets the definition of a dependent
and service requirements must be covered by a SEP for 2021, the basic standard deduction (Your Income
if they have 2021 compensation exceeding $650 (up Tax 2021, pages 348–349) is the greater of (1) $1,100
from $600 in 2020). or (2) the dependent’s earned income plus $350 (but
Definition of key employee or highly compensated no more in total than the basic standard deduction for
employee (page 80, 192). The earnings threshold for the dependent’s filing status).
determining highly compensated employees under the Rate brackets for net capital gain and qualified
nondiscrimination rules is unchanged at $130,000. The dividends (pages 113-116). The bracket breakpoints
threshold for treating officers as key employees under between the 0% and 15% capital gain rates, and
the top-heavy plan rules is also unchanged at $185,000. between the 15% and 20% capital gain rates, are
increased for 2021. The breakpoint between the 0%
Saver’s credit (page 523–524). The first $2,000
of eligible contributions (including ABLE account rate and the 15% rate is: $80,800 if married filing
contributions) made for 2021 may qualify for a 50%, jointly or a qualifying widow/widower, $54,100 if a
20%, or 10% retirement savings contribution credit head of household, or $40,400 if single or married
filing separately. There is no tax (0% rate applies)
(“saver’s credit”), depending on the taxpayer’s AGI. on 2021 qualified dividends and eligible long-term
For married persons filing jointly, the 50% credit capital gains (collectibles gains and unrecaptured
applies if 2021 AGI does not exceed $39,500, the 20% Section 1250 gains are not eligible) if taxable income
credit rate applies if AGI does not exceed $43,000, and does not exceed the applicable breakpoint. Even
the 10% credit applies if AGI does not exceed $66,000. if taxable income exceeds the breakpoint, the 0%
For a head of household, the 50% credit applies if rate rather than the 15% rate might still apply to a
2021 AGI does not exceed $29,625, the 20% credit portion of the gains/dividends, depending on how
rate applies if AGI does not exceed $32,250, and the much of the taxable income consists of ordinary
10% credit applies if AGI does not exceed $49,500. income and how much is long-term gain plus
For single individuals, married persons filing qualified dividends; this will be figured on the IRS
separately, and qualifying widows/widowers, the 50% capital gains rate worksheet.
credit applies if 2021 AGI does not exceed $19,750, The breakpoint between the 15% and 20% rate is
the 20% credit rate applies if AGI does not exceed $501,600 if married filing jointly or a qualifying widow/
$21,500, and the 10% credit applies if AGI does not widower, $473,750 if a head of household, $445,850
exceed $33,000. if single, or $250,800 if married filing separately. Even

12 | Supplement to J.K. Lasser’s Your Income Tax 2021