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The IRS has released the annual inflation adjustments for 2021 for the income tax rate tables, and for over 50 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation. 2021 Income Tax Brackets For 2021, the highest income tax bracket of 37 percent applies when taxable income hits: $628,300 for married individuals filing jointly and surviving spouses, $523,600 for single individuals and heads of households, $314,150 for married individuals filing separately, and $13,050 for estates and trusts. 2021 Standard Deduction The standard deduction for 2021 is: $25,100 for married individuals filing jointly and surviving spouses, $18,800 for heads of households, and $12,550 for single individuals and married individuals filing separately. The standard deduction for a dependent is limited to the greater of: $1,100 or the sum of $350 plus the dependent’s earned income. Individuals who are blind or at least 65 years old get an additional standard deduction of: $1,350 for married taxpayers and surviving spouses, or $1,700 for other taxpayers. AMT Exemption for 2021 The alternative minimum tax (AMT) exemption for 2021 is: $114,600 for married individuals filing jointly and surviving spouses, $73,600 for single individuals and heads of households, $57,300 for married individuals filing separately, and $25,700 for estates and trusts. The exemption amounts begin to phase out when alternative minimum taxable income (AMTI) exceeds: $1,047,200 for married individuals filing jointly and surviving spouses, $523,600 for single individuals, heads of households, and married individuals filing separately, and $85,650 for estates and trusts. Expensing Section 179 Property in 2021 For tax years beginning in 2021, taxpayers can expense up to $1,050,000 in Code Sec. 179 property. However, this dollar limit is reduced when the Section 179 property placed in service during the year exceeds $2,620,000. Estate and Gift Tax Adjustments for 2021 The following inflation adjustments apply to federal estate and gift taxes in 2021: the gift tax exclusion is $15,000 per donee, or $159,000 for gifts to spouses who are not U.S. citizens; the federal estate tax exclusion is $11,700,000; and the maximum reduction for real property under the special valuation method is $1,190,000. 2021 Inflation Adjustments for Other Tax Items The maximum foreign earned income exclusion amount in 2021 is $108,700. The IRS also provided inflation-adjusted amounts for the: adoption credit, lifetime learning credit, earned income credit, excludable interest on U.S. savings bonds used for education, various penalties, and many other provisions. Effective Date These inflation adjustments generally apply to tax years beginning in 2021, so they affect most returns that will be filed in 2022. However, some specified figures apply to transactions or events in calendar year 2021.

The IRS has released the 2021 cost-of-living adjustments (COLAs) for pension plan dollar limitations and other retirement-related provisions. Key Unchanged Amounts The 2021 contribution limit remains unchanged at $19,500 for employees who take part in: 401(k) plans, 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan The catch-up contribution limit for employees aged 50 and over who participate in these plans also remains unchanged at $6,500. The limitation for SIMPLE retirement accounts is unchanged at $13,500. For individual retirement arrangements (IRAs), the limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment, and so remains $1,000. IRAs and Roth IRAs The income ranges for determining eligibility to make deductible contributions to traditional IRAs and to contribute to Roth IRAs have increased for 2021. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or his or her spouse takes part in a retirement plan at work. The deduction phase out depends on the taxpayer's filing status and income. For single taxpayers covered by a workplace retirement plan, the 2021 phase-out range is $66,000 to $76,000, up from $65,000 to $75,000 for 2020. For married couples filing jointly, when the spouse making the contribution takes part in a workplace retirement plan, the 2021 phase-out range is $105,000 to $125,000, up from $104,000 to $124,000 for 2020. For an IRA contributor who is not covered by a workplace retirement plan but who is married to someone who is covered, the 2021 phase out range is between $198,000 and $208,000, up from $196,000 and $206,000 for 2020. For a married individual who is covered by a workplace plan and is filing a separate return, the phase-out range is not subject to an annual COLA and remains $0 to $10,000. The 2021 income phase-out ranges for Roth IRA contributions are: $125,000 to $140,000 for singles and heads of household (up from $124,000 to $139,000 in 2020), $198,000 to $208,000 for married filing jointly (up from $196,000 to $206,000 in 2020), and $0 to $10,000 for married filing separately. Saver’s Credit The income limit for low- and moderate-income workers to claim the Saver's Credit under Code Sec. 25B has also increased for 2021: $66,000 for married couples filing jointly (up from $65,000 in 2020), $49,500 for heads of household (up from $48,750 in 2020), and $33,000 for singles and married filing separately (up from $32,500 in 2020).

The U.S. Supreme Court heard oral arguments in California v. Texas, the latest challenge to the Affordable Care Act (ACA). The ACA expanded insurance coverage, and includes popular provisions such as required coverage of preexisting medical conditions. Three major issues are at play in this case: Do the plaintiff challengers of ACA—two individuals, the Trump Administration, and a number of states led by Texas—have standing to bring this case? Did reducing the penalty amount under Code Sec. 5000A(c) to $0 render the individual mandate in the ACA unconstitutional? If the mandate is unconstitutional, does that mean the act itself is unconstitutional, in whole or in part? Background The individual mandate in the ACA requires that taxpayers either maintain minimum essential coverage, have an exemption, or pay a penalty. The Tax Cuts and Jobs Act of 2017 zeroed out the penalty. The plaintiffs in this case argue that without the penalty, the mandate is unconstitutional. They further contend that the mandate is so essential to ACA that it cannot be severed from the rest of the law, and thus the entire act should be struck down. At the very least, they would like the Court to strike down portions of the ACA. The challenger states are: Texas, Alabama, Arkansas, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Mississippi, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Tennessee, Utah, and West Virginia. They have added two individuals, and the U.S. Department of Justice under the Trump Administration is also a party. Other states, the District of Columbia, and the U.S. House of Representatives have intervened to defend the ACA. The intervenor states are: California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Nevada, North Carolina, New Jersey, New York, Oregon, Rhode Island, Virginia, Vermont, and Washington. Oral Arguments The Supreme Court heard oral arguments from both sides of this case on November 10. The challengers argued that Republicans used the 2017 Tax Cuts and Jobs Act to eliminate the law’s penalty for Americans who do not get health coverage. This rendered the mandate unconstitutional, and since the mandate is so essential to the rest of the act, the whole act must also fall. The attorneys on behalf of the House, however, argued that the plaintiffs are asking the Supreme Court to take on a legislative role contrary to the Court’s precedent, and that striking down the ACA would throw millions of people off their health insurance, end pre-existing condition protections, and create "chaos in the health care sector." The Supreme Court appeared unlikely to completely wipe out ACA, with key conservative justices Chief Justice John Roberts and Justice Brett Kavanaugh indicating that such a ruling would be too broad of a role for the courts. "I think it's hard for you to argue that Congress intended the entire act to fall if the mandate were struck down," Chief Justice Roberts said. If the three more liberal justices agree with the two conservative justices, it would provide the minimum five votes needed for the ACA to survive its latest appearance before the Supreme Court. A decision is expected before the end of term in June.