On 26 October 2020, the U.S. IRS issued Revenue Procedure 2020-45, which provides the tax year 2021 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. One highlighted change is that the Consolidated Appropriation Act for 2020 increased the amount of the minimum additional tax for failure to file a tax return within 60 days of the due date. Beginning with returns due after 31 December 2019, the new additional tax is USD 435 or 100% of the amount of tax due, whichever is less, an increase from USD 330. The USD 435 additional tax will be adjusted for inflation.

The tax items for tax year 2021 of greatest interest to most taxpayers include the following U.S. dollar amounts:

• The standard deduction for married couples filing jointly for tax year 2021 rises to USD 25,100, up USD 300 from 2020. For single taxpayers and married individuals filing separately, the standard deduction rises to USD 12,550 for 2021, up USD 150, and for heads of households, the standard deduction will be USD 18,800 for tax year 2021, up USD 150;
• The personal exemption for tax year 2021 remains at 0, as it was for 2020; this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act (TCJA);  
• For tax year 2021, the top tax rate remains 37% for individual single taxpayers with incomes greater than USD 523,600 (USD 628,300 for married couples filing jointly). The other rates are:
  • 35%, for incomes over USD 209,425 (USD 418,850 for married couples filing jointly);
  • 32% for incomes over USD 164,925 (USD 329,850 for married couples filing jointly);
  • 24% for incomes over USD 86,375 (USD 172,750 for married couples filing jointly);
  • 22% for incomes over USD 40,525 (USD 81,050 for married couples filing jointly);
  • 12% for incomes over USD 9,950 (USD 19,900 for married couples filing jointly); and
  • The lowest rate is 10% for incomes of single individuals with incomes of USD 9,950 or less (USD 19,900 for married couples filing jointly);
• For 2021, as in 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the TCJA;
• The Alternative Minimum Tax exemption amount for tax year 2021 is USD 73,600 and begins to phase out at USD 523,600 (USD 114,600 for married couples filing jointly for whom the exemption begins to phase out at USD 1,047,200). The 2020 exemption amount was USD 72,900 and began to phase out at USD 518,400 (USD 113,400 for married couples filing jointly for whom the exemption began to phase out at USD 1,036,800);
• The tax year 2021 maximum Earned Income Credit amount is USD 6,728 for qualifying taxpayers who have three or more qualifying children, up from a total of USD 6,660 for tax year 2020. The revenue procedure contains a table providing maximum Earned Income Credit amount for other categories, income thresholds and phase-outs;
• For tax year 2021, the monthly limitation for the qualified transportation fringe benefit remains USD 270, as is the monthly limitation for qualified parking;
• For the taxable years beginning in 2021, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements remains USD 2,750. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is USD 550, an increase of USD 50 from taxable years beginning in 2020;
• For tax year 2021, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than USD 2,400, up USD 50 from tax year 2020; but not more than USD 3,600, an increase of USD 50 from tax year 2020. For self-only coverage, the maximum out-of-pocket expense amount is USD 4,800, up USD 50 from 2020. For tax year 2021, participants with family coverage, the floor for the annual deductible is USD 4,800, up from USD 4,750 in 2020; however, the deductible cannot be more than USD 7,150, up USD 50 from the limit for tax year 2020. For family coverage, the out-of-pocket expense limit is USD 8,750 for tax year 2021, an increase of USD 100 from tax year 2020;
• For tax year 2021, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is USD 119,000, up from USD 118,000 for tax year 2020;
• For tax year 2021, the foreign earned income exclusion is USD 108,700 up from USD 107,600 for tax year 2020;
• Estates of decedents who die during 2021 have a basic exclusion amount of USD 11,700,000, up from a total of USD 11,580,000 for estates of decedents who died in 2020;
• The annual exclusion for gifts is USD 15,000 for calendar year 2021, as it was for calendar year 2020; and
• The maximum credit allowed for adoptions for tax year 2021 is the amount of qualified adoption expenses up to USD 14,440, up from USD 14,300 for 2020.