For many people, paying 2020 taxes is more pressing right now than figuring out their 2021 tax situation. That makes sense! Your 2020 return is due in April—and the 2021 review is still a long way off.
If you want to be ahead of the game, however, it’s still smart to get familiar with the taxes that have changed for next year. Check out these FAQs below.
Don’t forget that not all figures are adjusted every year for inflation, and even if they are changed, that change might not be significant. Some taxes only change when a new law is passed.
What is the 2021 IRA contribution max?
Eligible individuals can contribute $6,000 a year to a traditional or Roth IRA, up to 100% of your earned income. For people who are 50 or older, you can make another $1,000 “catch up” contribution.
How much can I contribute to a 401(k) that I hold through my job?
The 2021 maximum contribution is $19,500 (unchanged from 2020) to a 401(k) or 403(b) plan. For people who are 50 or older, you can make an additional $6,500 catch-up contribution.
What if I employ a babysitter and a cleaning person? Do I have to withhold and pay FICA tax on the amounts I pay them?
It depends. In 2021, a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc., if they pay over $2,300 (up from $2,200 in 2020).
At what salary point can stop paying Social Security on my salary in 2021?
This year, the Social Security tax wage base has gone up to $142,800 from last year’s $137,700, so you don’t have to pay Social Security on amounts you pay above that. You must pay Medicare tax, however, on your entire salary.
If I didn’t qualify for itemized deductions on my last tax return, will I qualify for 2021?
In 2017, the standard deduction was increased, which meant that itemized deductions were often no longer beneficial. For 2021, the standard deduction amount is $25,100 for married couples filing jointly (up from $24,800). For single filers, the amount is $12,550 (up from $12,400) and for heads of households, it’s $18,800 (up from $18,650). If the amount of your itemized deductions is less than the applicable standard deduction amount, you won’t itemize for 2021.
Does that mean I can’t take charitable deductions?
Generally, taxpayers who claim the standard deduction on their federal tax returns haven’t been able to deduct charitable donations. The CARES Act, however, decided that single and married joint filing taxpayers can deduct up to $300 in donations to qualified charities on their 2020 federal returns, even if they claim the standard deduction. The Consolidated Appropriations Act increased the amount that married couples filing jointly can claim to $600 in 2021.
How much can I give to one person without triggering a gift tax return in 2021?
This number is the same as it was in 2020/ The annual gift exclusion for 2021 is $15,000 (unchanged from 2020). This amount is only adjusted in $1,000 increments, so it typically only increases every few years.
The tax strategy for your tax situation
These are only some of the tax amounts that may apply to you. Contact your trusted Smolin advisor for more information about your tax situation, or if you have questions