Every year, contribution limits for health savings increase due to inflation. 2020 we saw the emergence and impact COVID-19 had on world economies. Unemployment and bankruptcies soared, interest rates remained ultra-low, and the only thing the government could do to keep the markets alive was to print and pump more money into them. The stimulus packages and relief plans also came with a cost, one the U.S. could not afford. In order to meet the unprecedented demand for fiscal intervention, the Federal Government printed 9 trillion. This last year will have a cascading effect on HSA limits for 2021 and years after.
- Self-only coverage will increase $50 from the previous year to $3,550
- Family coverage will go up to $7,100 (a $100 increase from the previous years’ return)
Required Minimum Distributions
The CARES Act also may also require retirees to owe less in federal income taxes in 2021 since they will have lower taxable incomes. The CARES Act waived required minimum distributions for 2020 tax returns, which would typically be taxable income.
Contribution Limits For Limited Workplace Retirement Accounts
Like contribution limits, limits for workplace retirement accounts have also been adjusted for inflation. There will be a limit for catch-up contributions, for anyone age 50 and up, at $6,500 which is up to $500 from the previous year. Base contribution limits for 401(k) plans are also up to $500 from the previous tax year to $19,500.
Limits for Saver’s Credit
The limits for Saver’s Credit has been raised $1,000 for those that are married filing jointly to $65,000 and up to $750 to $48,750 for the head of household. For all other tax filing statuses, it will be $32,500 up to $500 from the previous tax year. Anyone under these income thresholds is eligible for Saver’s Credit.
For single taxpayers and married individuals filing separately, standard deductions will be raised from $150 to $12,550 in 2021 and $18,800 for heads of households. For married couples filing jointly, this will increase to $25,100 an increase of $300. For 2020 tax returns, single filing statuses deductions will be raised to $12,400 up to $200 from 2019 tax returns. There will be no limits to itemized deductions.
The tax rates will remain the same with adjustments to tax brackets. According to the IRS website, these will be the income tax brackets for 2021:
For Single Filing Statuses:
37% for incomes over $523,600 up $5,200 from 2020
35% for incomes over $209,425 up $2,075 from 2020
32% for incomes over $164,925 up $1,625 from 2020
24% for incomes over $86,375 up $850 from 2020
22% for incomes over $40,525 up $400 from 2020
12% for incomes over $9,950 up $75 from 2020
10% for incomes under $9,950 up $75 from 2020
For Married Couples Filing Jointly:
37% for incomes greater than $628,300 up $6,250 from 2020
35% for incomes over $418,850 up $4,150 from 2020
32% for incomes over $329,850 up $3,250 from 2020
24% for incomes over $172,750 up $1,700 from 2020
22% for incomes over $81,050 up $800 from 2020
12% for incomes over $19,900 up $150 from 2020
10% for incomes under $19,900 up $150 from 2020
Thanks to the CARES Act, the IRS is allowing up to $300 in cash contributions made in 2020 to encourage citizens to donate money to charity during the pandemic. Cash contributions in 2020 will be 40% more from the previous year up to 100% deductible of adjusted gross income. Taxpayers are also not subject to the $300 limit for charitable contributions if they itemize deductions. For adoption credits, a tax credit for qualified adoption expenses is set at the max amount of $14,300 for 2020 tax returns, up to $220 from the previous year.
MBA Financial & Accounting Solutions we offer services including but not limited to individuals, corporations, partnerships, LLC’s, amendments, prior-years, estates, trusts, and tax-exempt organizations. MBA accountants stay up to date on current federal and state tax laws as well as complex tax codes and new tax regulations in order to provide you with the best tax advice possible. We pledge to keep your taxes as low as the law allows while improving the accuracy of your tax return and minimize audit risk.