Page 15 - Supplement to Income Tax TY2021

Estimating Your 2021 Taxes

if taxable income exceeds the breakpoint, the 20% rate complete if MAGI is $256,660 or more. The same
does not necessarily apply to the gains/dividends. If limit and phaseout rules apply to the employee
ordinary income is only a small part of taxable income, exclusion for benefits under an employer’s adoption
the 15% or even the 0% rate may apply to some of the assistance program.
gains/dividends; this will be figured on the IRS capital Child tax credit and credit for other dependents (pages
gains rate worksheet. 509–512). The maximum child tax credit amount is
The 15% or 20% rate is increased by the 3.8% tax set by statute at $2,000 per qualifying child. For 2021,
on net investment income if MAGI exceeds $250,000 the maximum amount of the credit that is refundable
if married filing jointly or a qualifying widow/ is unchanged at $1,400 per qualifying child.
widower, $200,000 if single or head of household, or The gross income limit for a qualifying relative for
$125,000 if married filing separately. If this threshold the $500 nonrefundable credit for other dependents is
is exceeded, the 3.8% tax applies to the lesser of the unchanged at $4,300.
taxpayer’s net investment income, or the MAGI over
the threshold. Health FSA salary reduction (pages 78–80). The
2021 limit on salary-reduction contributions to a
First-year expensing (pages 732–734). For 2021, health flexible spending arrangement is unchanged
the expensing limit increases to $1,050,000 and the at $2,750. However, as explained earlier in this
limit is phased out when qualifying purchases exceed Supplement, the new law provides for enhanced
$2,620,000. Thus, no expensing will be allowed if carryovers or grace periods as well as making mid-
purchases are $3,670,000 or more.
year changes in 2021.
Qualified business income (QBI) deduction (pages 600, Educator expenses (page 339). The maximum
715–716). For 2021, the taxable income threshold above-the-line deduction for educator expenses
above which the QBI deduction may be reduced remains at $250 for 2021. However, the new law
or eliminated is $329,800 if married filing jointly, expanded the definition of “classroom expenses”
$164,925 for married filing separately, and $164,900 by requiring the IRS to issue guidance providing
for other filers.
that the cost of personal protective equipment and
Kiddie tax (pages 502–507). For 2021, a child’s supplies used to prevent the spread of COVID-19
investment income over a $2,200 floor (unchanged are eligible for the deduction, retroactive to expenses
from 2020) is taxed at the parent’s top marginal rate. paid after March 12, 2020.
AMT exemption amounts and breakpoint between Exclusion for interest on savings bonds used for tuition
26% and 28% rates (pages 494–501). The AMT (pages 611–613). The exclusion for interest on Series
exemption amounts for 2021 are increased to EE and I bonds redeemed to pay higher education
$114,600 for married couples filing jointly and expenses will start phasing out for married couples
surviving spouses, $73,600 for singles and heads filing jointly with 2021 MAGI over $124,800, and
of households, and $57,300 for married persons the phaseout is complete if MAGI is $154,800 or
filing separately. The 26% AMT rate applies to more. For single taxpayers, heads of households, and
the first $199,900 of 2021 taxable income (AMTI qualifying widows/widowers, the phaseout begins
minus exemption), or $99,950 if married filing when MAGI exceeds $83,200 and is complete at
separately, and the 28% rate applies to the excess over MAGI of $98,200 or more. Married persons filing
$199,000/$99,950. separately are not eligible for the exclusion.

Adoption credit and employer adoption assistance Premiums for long-term-care policies (page
(pages 57, 67–68, 520–522). The maximum adoption 422). The maximum amount of long-term-care
credit for 2021 is $14,440. The credit will phase insurance premiums that can be included in the
out if MAGI exceeds $216,660, and the phaseout is itemized deduction for medical expenses depends

Supplement to J.K. Lasser’s Your Income Tax 2021 | 13