The IRS has released the key tax numbers that are updated annually for inflation, including tax brackets, phaseouts, standard deduction, and contribution limits. Due to rounding limitations, not all numbers have changed from last year, but tax bracket thresholds have increased by just over 3%. The notices containing this information are available on the IRS website here and here. Some notable callouts for those who don’t want to read all the way through the update:
- Max contributions to 401k, 403b, and 457 retirement accounts will increase by $1,00 to $20,500 (+$6,500 catch-up, which remains constant, if you’re at least age 50).
- Max contribution to a SIMPLE retirement account will increase by $500 to $14,000 (+$3,000 catch-up if you’re at least age 50).
- Max total contribution to most employer retirement plans (employee + employer contributions) increases from $58,000 to $61,000 (+$6,500 catch-up, again for those 50 or over).
- Max contribution to an IRA remains at $6,000 (+$1,000 catch-up if you’re at least age 50).
- The phase out for being able to make a Roth IRA contribution is $214k (married) and $144k (single). Phase out begins at $204k (married) and $129k (single).
- The standard deduction increases by $800 to $25,900 (married) and by $400 to $12,950 (single) +$1,750 if you’re at least age 65 and single or $1,400 each if you’re married and at least 65.
- The personal exemption remains $0 (the Tax Cuts & Jobs Act eliminated the personal exemption in favor of a higher standard deduction and child tax credits).
- The child tax credit reverts back to pre-2021 rules at $2,000 per child, phasing out between $400-440k (married) and $200-220k (single). Note: it’s possible that 2021 tax treatment may be extended to 2022 or beyond, if the Build Back Better plan passes Congress. Stay tuned.
- The maximum contribution to a Health Savings Account (HSA) will increase to $7,300 (married) and $3,650 (single).
- The annual gift tax exemption increases by $1,000 to $16,000 per giver per receiver.
- The lifetime gift / estate tax exemption increases to $12,060,000.
- Social Security benefits will rise 5.9% in 2020. The wage base for Social Security taxes will rise to $147,000 in 2022 from $142,800.
You can find all of the key tax numbers, updated upon release, on the PWA website, under Resources.