Tax Changes for 2020-2021: Coronavirus Effects and Other New Rules
Here's how some of the most influential tax rules have changed and how they might affect you.
This article covers two types of tax changes this year:
Tax changes related to the government's ongoing response to the coronavirus.
Tax changes related to annual adjustments in tax rules and thresholds that could affect what you can claim and how you file.
Coronavirus-related tax changes
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Each year, the IRS also does some tinkering and adjusting to various tax rules, and knowing what they are could save you a lot of money. Here's what's different for the 2020 tax year, which will affect the tax return you'll file in 2021.
This year's regularly scheduled changes
Tax brackets and tax rates
There are seven federal tax brackets for the 2020 tax year: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your bracket depends on your taxable income and filing status. These are the rates for taxes due in April 2021.
2020 federal income tax brackets
(for taxes due in April 2021, or in October 2021 with an extension)
Expand the filing status that applies to you.
Standard deduction
The standard deduction reduces your taxable income. For the 2020 tax year (that's the tax return you'll file in 2021), the standard deduction is $12,550 for single filers and married filers filing separately, $25,100 for married filers filing jointly and $18,800 for heads of household. (Go here for help deciding whether to itemize or take the standard deduction.)
Filing status | 2020 tax year | 2021 tax year |
|---|---|---|
Single | $12,400 | $12,550 |
Married, filing jointly | $24,800 | $25,100 |
Married, filing separately | $12,400 | $12,550 |
Head of household | $18,650 | $18,800 |
The standard deduction is $1,300 higher for those who are over 65 or blind; it's $1,650 higher if also unmarried and not a surviving spouse.
Personal exemption
There are no personal exemptions in the 2020 tax year.
Retirement plan contribution and income limits
Contributing to an IRA can cut your tax bill significantly.
Traditional IRA income limits for the 2020 and 2021 tax years
Note: Traditional IRA income limits apply only if you (or your spouse) have a retirement account at work.
Filing status | 2020 MAGI | 2021 MAGI | Deduction |
|---|---|---|---|
Single or head of household (and covered by retirement plan at work) | $65,000 or less | $66,000 or less | Full deduction |
More than $65,000 but less than $75,000 | More than $66,000 but less than $76,000 | Partial deduction | |
$75,000 or more | $76,000 or more | No deduction | |
Married filing jointly (and covered by retirement plan at work) | $104,000 or less | $105,000 or less | Full deduction |
More than $104,000 but less than $124,000 | More than $105,000 but less than $125,000 | Partial deduction | |
$124,000 or more | $125,000 or more | No deduction | |
Married filing jointly (spouse covered by retirement plan at work) | $196,000 or less | $198,000 or less | Full deduction |
More than $196,000 but less than $206,000 | More than $198,000 but less than $208,000 | Partial deduction | |
$206,000 or more | $208,000 or more | No deduction | |
Married filing separately (you or spouse covered by retirement plan at work) | Less than $10,000 | Less than $10,000 | Partial deduction |
$10,000 or more | $10,000 or more | No deduction |
Roth IRA income limits for the 2020 and 2021 tax years
Filing status | 2020 MAGI | 2021 MAGI | Maximum annual contribution |
|---|---|---|---|
Single, head of household or married filing separately (if you didn't live with spouse during year) | Less than $124,000 | Less than $125,000 | $6,000 ($7,000 if 50 or older) |
$124,000 up to $139,000 | $125,000 up to $140,000 | Contribution is reduced | |
$139,000 or more | $140,000 or more | No contribution allowed | |
Married filing jointly or qualifying widow(er) | Less than $196,000 | Less than $198,000 | $6,000 ($7,000 if 50 or older) |
$196,000 up to $206,000 | $198,000 up to $208,000 | Contribution is reduced | |
$206,000 or more | $208,000 or more | No contribution allowed | |
Married filing separately (if you lived with spouse at any time during year) | Less than $10,000 | Less than $10,000 | Contribution is reduced |
$10,000 or more | $10,000 or more | No contribution allowed |
Student loan interest deduction
The student loan interest deduction lets you deduct up to $2,500 from your taxable income if you paid interest on student loans in 2020. If you fall into the 22% tax bracket, for example, the maximum student loan interest deduction would put $550 back in your pocket.
Student loan interest is deductible if your modified adjusted gross income, or MAGI, was less than $70,000 in the past tax year. The maximum deduction is $2,500. If your MAGI was between $70,000 and $85,000, you can deduct a reduced amount of interest that you paid.
Earned Income Tax Credit
The Earned Income Tax Credit (EIC or EITC) is a refundable tax credit for low- and moderate-income workers. The amount depends on income and number of children. People without kids can qualify. For 2020, the earned income tax credit ranges from $538 to $6,660. The amount depends on income and number of children. People without kids can qualify. For 2021, the earned income credit ranges from $543 to $6,728 (go here for more on how it works).
2020 Earned Income Tax Credit
(for taxes due in April 2021)
Number of children | Maximum earned income tax credit | Max earnings, single or head of household filers | Max earnings, joint filers |
|---|---|---|---|
0 | $538 | $15,820 | $21,710 |
1 | $3,584 | $41,756 | $47,646 |
2 | $5,920 | $47,440 | $53,330 |
3 or more | $6,660 | $50,954 | $56,844 |
Both your earned income and your adjusted gross income each have to be below the levels in the table.
In general, the less you earn, the larger the earned income credit.
Your earned income usually includes job wages, salary, tips and other taxable pay you get from your employer. Your adjusted gross income is your earned income minus certain deductions.
