10 Ways Your Income Taxes Will Be Different in 2021

Couple doing their taxes
Photo by WAYHOME studio / Shutterstock.com

It’s been a year like no other, and taxes will be no exception.

Your federal income tax return for 2020 — the one due by April — will be a little different from recent years past due to new laws stemming from the coronavirus pandemic, as well as the usual inflation adjustments.

So, here’s a look at some ways the return you will file in 2021 will differ from your prior return.

1. Waived RMDs

The Coronavirus Aid, Relief, and Economic Security Act of 2020, better known as the CARES Act, waived required minimum distributions (RMDs) from retirement accounts for 2020.

RMDs generally count as taxable income. So, this one-time reprieve means that some retirees will have lower taxable incomes for 2020 and thus possibly owe less in federal income taxes in 2021.

2. A charitable deduction available to all

Usually, you can only write off tax-deductible donations to charity on your federal tax return if you itemize your deductions rather than take the standard deduction — and the latter has become far more common since the 2017 overhaul of the federal tax code.

But in an effort to encourage Americans to donate money to charity during the coronavirus pandemic, the CARES Act enabled taxpayers to deduct up to $300 in monetary donations in 2020 — even if they take the standard deduction.

To learn more, check out “You’re Almost Out of Time for This Coronavirus Tax Break.”

3. Higher standard deductions

Standard deductions generally rise each year on account of adjustments for inflation. The IRS reports that for 2020, the standard deduction amounts for the following tax-filing statuses are:

  • Married filing jointly: $24,800 — up $400 from 2019
  • Married individuals filing separately: $12,400 — up $200
  • Head of household: $18,650 — up $300
  • Single: $12,400 — up $200

The standard deduction reduces the amount of your income that’s subject to federal taxes. So, if a single person is eligible for and chooses to take the standard deduction (as opposed to itemizing deductions) on their 2020 tax return, they would not be taxed on the first $12,400 of their income from 2020.

4. Higher income brackets

Income tax brackets also tend to rise annually. For 2020, the income brackets are as follows for folks whose tax-filing status is single:

  • 37% tax rate: Applies to taxable income of more than $518,400
  • 35%: More than $207,350 but not more than $518,400
  • 32%: More than $163,300 but not more than $207,350
  • 24%: More than $85,525 but not more than $163,300
  • 22%: More than $40,125 but not more than $85,525
  • 12%: More than $9,875 but not more than $40,125
  • 10%: Income of $9,875 or less

For complete 2020 tax rate tables for all tax-filing statuses, see Pages 5-7 of IRS Revenue Procedure 2019-44. If you want to compare them with the 2019 tables, see Pages 8-10 of Internal Revenue Bulletin 2018-57.

5. Higher contribution limits for (some) retirement accounts

You could save more money in several types of workplace retirement accounts in 2020.

The base contribution limit for 401(k) plans, for example, is $19,500 — up from $19,000 for 2019. The limit for catch-up contributions, which taxpayers age 50 and older can make, is an additional $6,500 — up from $6,000. So, folks who are at least 50 can contribute a total of $26,000 to a 401(k) in 2020.

6. Higher contribution limits for HSAs

Workplace retirement accounts are not alone. Contribution limits for health savings accounts (HSAs) also tend to increase each year — and 2020 is no exception.

The 2020 contribution limits for folks who are eligible for an HSA and have the following types of high-deductible health insurance policies are:

  • Self-only coverage: $3,550 — up from $3,500 for 2019
  • Family coverage: $7,100 — up from $7,000

7. Higher income limits for the saver’s credit

For 2020, the saver’s credit, formally known as the retirement savings contributions tax credit, has higher income limits. That effectively makes this little-known tax credit available to more people.

You might be eligible for this credit in 2020 if your adjusted gross income, or AGI (found on your tax return), is not more than:

  • Married filing jointly: $65,000 — up from $64,000 for 2019
  • Head of household: $48,750 — up from $48,000
  • All other tax-filing statuses: $32,500 — up from $32,000

8. A more valuable adoption tax credit

The tax credit for qualified adoption expenses is more valuable for 2020. The maximum allowable credit amount is $14,300 — up from $14,080 for 2019.

9. A more valuable earned income tax credit

For 2020, both the income limits and the maximum credit amount for the earned income tax credit (EITC) are higher.

You might be eligible for the EITC on your 2020 return if your AGI is not more than:

  • Married filing jointly: $56,844 — up from $55,952 for 2019
  • All other tax-filing statuses: $50,594 — up from $50,162

The maximum amount that the EITC is worth for 2020 is $6,660 — up from $6,557.

10. A higher cap on Social Security payroll taxes

One bit of bad news for some folks: The maximum amount of a worker’s income that is subject to Social Security payroll taxes rose to $137,700 for 2020 — up from $132,900 for 2019.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Gadgets Under $60 That Can Boost Your Health
7 Gadgets Under $60 That Can Boost Your Health

These Amazon finds can help ease foot aches, boost energy and even protect your heart.

The Annuity Everyone Needs — and Anybody Can Get
The Annuity Everyone Needs — and Anybody Can Get

This simple strategy can put more money in your pocket during retirement.

20 Generic Brands That Amazon Created
20 Generic Brands That Amazon Created

Amazon’s growing collection of private brands offers everything from toilet paper and coffee to motor oil and clothing.

7 Reasons Workers Age 65 and Older Have Not Retired Yet
7 Reasons Workers Age 65 and Older Have Not Retired Yet

For some, the golden years are a time to increase the gold — but their reasons for delaying retirement vary widely.

9 Affordable Ways to Make Your Home Look Expensive
9 Affordable Ways to Make Your Home Look Expensive

These products from Amazon add elegance to your home without the expense.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

8 Tips for Retiring Comfortably on Social Security Alone
8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Generic Products You Should Buy at Costco
11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

15 Free Streaming Services to Watch While Stuck at Home
15 Free Streaming Services to Watch While Stuck at Home

These free movie streaming sites offer thousands of movies and TV shows, including recent releases and beloved classics. If you love free movies, online sites are where you need to look for the best list of features that are just one easy click away.

This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

27 Things You Should Never Pay For — and How to Get Them for Free
27 Things You Should Never Pay For — and How to Get Them for Free

When you know the tricks, you can save big on all kinds of useful things that others pay for.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?
Can a Divorced Widow Claim Her First Husband’s Social Security Benefits?

The rules are complicated when it comes to eligibility for survivors benefits.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

15 Amazon Purchases That We Are Loving Right Now
15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

10 Things I Always Buy at Trader Joe’s
10 Things I Always Buy at Trader Joe’s

From snacks to sweets to side dishes, stock your cart with these time-tested favorites on your next TJ’s run.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

The Worst Day of the Year to Buy a Used Car
The Worst Day of the Year to Buy a Used Car

If you need a new set of wheels, avoid shopping on this day.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

There are easy high-paying majors available in the U.S. — and no bachelor’s degree is required. We’re here to help you find easy degrees that pay well.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.