The 2020 U.S. income tax filing season began on Friday 12, 2021. As a result, individuals are now able to submit their 2020 income tax returns and the IRS will consequently start accepting and processing 2020 tax returns. With the start of this year’s tax filing season, we are providing a rundown of the income tax thresholds and tax brackets for the upcoming filing season.
The standard deduction reduces your taxable income to the extent it is greater than your allowable itemized deductions. For 2020, the standard deduction is $12,400 for single filers & $24,800 for those married filing jointly. The standard deduction is $1,300 more than the table below for those that are married filing jointly and 65 or older or blind; and $1,650 higher if a taxpayer is unmarried or filing as head of household. Deduction amounts are adjusted for 2021 as presented in the table below.
Retirement Plan Thresholds
For 2021 and 2020, the maximum elective deferrals for retirement plans are limited to:
Health Savings Accounts (HSA) and High-Deductible Health Plans
CARES Act expands FSA and HSA eligible purchases: As part of the Coronavirus Aid, Response and Economic Security (CARES) Act signed into law in March 2020, HSAs, FSAs, and HRAs (health reimbursement arrangements) can now be used to pay for over-the-counter medications without a prescription. The coronavirus-related legislation also allows FSAs, HSAs and HRAs to pay for certain menstrual care products, such as tampons and pads, as eligible medical expenses. These are permanent changes and apply retroactively to purchases beginning Jan. 1, 2020.
Dependent Care – FSA
A dependent care FSA is a pretax benefit account used to pay for dependent care services such as day care, preschool, summer camps and nonemployer-sponsored before or after school programs. Funds may be used for expenses relating to children under the age of 13 or incapable of self-care who live with the account holder more than half the year.
The dependent care FSA maximum, which is set by statute and is not subject to inflation-related adjustments, is $5,000 a year for individuals or married couples filing jointly, or $2,500 for a married person filing separately. Married couples have a combined $5,000 limit, even if each has access to a separate dependent care FSA through his or her employer.
AMT Rates, Exemptions, & Phaseouts
Net Investment Income Tax & Additional Medicare Tax
Net investment income (NII) includes dividends, rents, interest, passive activity income, capital gains, annuities, and royalties. Passive pass-through income is subject to the NII tax.
The NII tax does not apply to nonpassive income: Self-employment income, income from an active trade or business, portions of the gain on the sale of an active interest in a Partnership or S corporation with investment assets, or IRA or qualified plan distributions.