Tax filing season is still months away, but the IRS is giving everyone a heads-up on what bracket they'll fall into for this year. The updated tax brackets for the 2021 filing season are out, with adjustments made for inflation and cost-of-living increases. The highest tax bracket--a 37% rate--now starts at an annual income of $523,600 for single filers, and $628,300 for married couples. Conversely, the lowest bracket--a 10% rate--starts at $9,950 for single filers and $19,900 for married couples.
The tax brackets are adjusted annually, even though the rates themselves don't change. "They index all the brackets every year, so that you only end up paying more income taxes if you actually make more in real dollars, inflation-adjusted," says Grover Norquist, president of Americans for Tax Reform. "So every year, they increase the brackets--instead of starting to tax you at one rate at $50,000, they'll move it up to 51,000 or 52,000--depending on inflation."
The current rates were passed in the 2017 tax law and won't change for the upcoming filing season, but if Joe Biden gets elected they likely will change in the years ahead. That's because Biden has pledged to repeal the 2017 tax cuts and raise rates to their prior levels. "If he did that, for a median income family of four--somebody earning $70,000 with two children--that would be a $2,000 tax increase," says Norquist.
The standard deduction--which was doubled in the 2017 tax law--is also up this year, by $150 for single filers and heads of households, and by $300 for married couples. "Most people--about 85 percent--don't have that many itemized deductions to worry about, so they just take the standard deduction," says Norquist. "That way, they don't have to keep all the receipts."