High-Income Taxpayers
In addition to being subject to higher federal tax rates, taxpayers whose income exceeds certain levels have tax deductions and credits that are reduced or eliminated.
The provisions listed may have additional qualifications and restrictions. Other provisions of the tax code, such as fringe benefit limitations and taxation on the sale of a principal residence, may further restrict a taxpayer’s ability to take deductions or cause the taxpayer to pay additional tax. Ask your tax professional for more details.
Capital Gain Tax Rates
Long-Term Capital Gain
and
Qualified Dividend Income Maximum Tax Rates
| Taxable Income | Maximum Rate |
|---|---|
|
Single |
|
|
$0 to $40,400 |
0% |
|
$40,401 to $445,850 |
15% |
|
$445,851 and over |
20% |
|
HOH |
|
|
$0 to $54,100 |
0% |
|
$54,101 to $473,750 |
15% |
|
$473,751 and over |
20% |
| Taxable Income | Maximum Rate |
|---|---|
|
MFJ or QW |
|
|
$0 to $80,800 |
0% |
|
$80,801 to $501,600 |
15% |
|
$501,601 and over |
20% |
|
MFS |
|
|
$0 to $40,400 |
0% |
|
$40,401 to $250,800 |
15% |
|
$250,801 and over |
20% |
| Taxable Income | Maximum Rate |
|---|---|
|
Estates and Trusts |
|
|
$0 to $2,700 |
0% |
|
$2,701 to $13,250 |
15% |
|
$13,251 and over |
20% |
Itemized Deductions and Personal Exemptions
Taxes paid. The itemized deduction for state and local taxes is limited to $10,000 ($5,000 MFS). Foreign real property taxes are not deductible.
Home mortgage interest. A taxpayer may treat no more than $750,000 as acquisition indebtedness ($375,000 MFS). The $1,000,000 ($500,000 MFS) limitation continues to apply for any indebtedness incurred prior to December 15, 2017. The deduction for home equity indebtedness (other than debt for acquisition or improvement) is not allowed.
Personal exemptions. The deduction for personal exemptions is suspended for tax years 2018 through 2025.
Individual Retirement Arrangements (IRAs)
IRA Individual Contribution Limits
| 2021 | 2020 | |
|---|---|---|
|
Under age 50 |
$ 6,000 |
$ 6,000 |
|
Age 50 or older |
$ 7,000 |
$ 7,000 |
Traditional IRA Phaseout Based on Modified AGI (MAGI)
If an individual is an active participant in an employer-sponsored pension plan, the deduction for a traditional IRA contribution is phased out when MAGI is between the following.
| Tax Year | MFJ | Single, HOH | MFS |
|---|---|---|---|
|
2021 |
$ 105,000 to $ 125,000 |
$ 66,000 to $ 76,000 |
$ 0 to $10,000 |
|
2020 |
$ 104,000 to $ 124,000 |
$ 65,000 to $ 75,000 |
$ 0 to $10,000 |
If the individual is not an active participant, but the spouse is, the non-active participant’s deduction is phased out when modified AGI is between the following.
| Tax Year | MFJ | MFS |
|---|---|---|
|
2021 |
.$198,000 to $208,000 |
$0 to $10,000 |
|
2020 |
.$196,000 to $206,000 |
$0 to $10,000 |
Roth IRA Phaseouts
| 2021 | 2020 | |
|---|---|---|
|
MFJ or QW |
$ 198,000 to $ 208,000 |
$ 196,000 to $ 206,000 |
|
Single, HOH,
or MFS* |
$ 125,000 to $ 140,000 |
$ 124,000 to $ 139,000 |
|
MFS |
$ 0 to $ 10,000 |
$ 0 to $ 10,000 |
*MFS and did not live with spouse during the year.
Child Tax Credit
- $3,000 credit (age 6 to 17), $3,600 credit (under age 6), reduced with modified AGI of $150,000 MFJ or QW, $112,500 HOH, and $75,000 Single or MFS.
- $2,000 credit (under age 18), reduced with modified AGI of $400,000 MFJ, and $200,000 for all others.
Credit for Other Dependents
A nonrefundable credit of up to $500 is allowed for dependents other than a qualifying child for the Child Tax Credit.
Adoption Expenses
| Table Header | |
|---|---|
|
2021 maximum credit |
$ 14,440 |
|
2021 maximum exclusion |
$ 14,440 |
|
AGI phaseout |
$ 216,660 – $ 256,660 |
|
Unused credit carryforward |
5 years |
Additional Medicare Tax
Increased Medicare Tax on Earned Income
The employee portion of the hospital insurance (Medicare) tax is increased by an additional tax of 0.9% on wages received in excess of the threshold amount. However, unlike the general 1.45% hospital insurance (Medicare) tax on wages, this additional tax is on the combined wages of the employee and the employee’s spouse, in the case of a joint return.
Medicare Tax on Unearned Income
Individuals. The tax is 3.8% on the lesser of net investment income or the excess of modified adjusted gross income over the threshold amount.
Threshold Amount
| Table Header | |
|---|---|
|
Joint return or surviving spouse |
$250,000 |
|
Married individual filing separately |
$125,000 |
|
All other tax filers |
$200,000 |
Education Benefits
2021 Education Benefits Comparison Chart
| Benefit | Annual Limit | Modified AGI Phaseout | |
|---|---|---|---|
|
American
Opportunity / Hope Credit |
40% of the credit
may be refundable
(limited to $1,000) |
$2,500 credit
per student. |
$80,000 – $90,000 $160,000 –$180,000 (MFJ) |
|
Lifetime
Learning Credit |
Tax credit (nonrefundable). |
$2,000 credit
per tax
return. |
$80,000 – $90,000 $160,000 – $180,000 (MFJ) |
|
Coverdell
Education
Savings
Account (ESA) |
Tax-free earnings. |
$2,000
contribution
per
beneficiary |
$95,000 – $110,000 $190,000 – $220,000 (MFJ) |
|
U.S. Savings
Bond Interest
Exclusion |
Tax-free interest. |
Amount of
qualified
education
expenses. |
$83,200 – $98,200 $124,2800 – $154,880 (MFJ) |
|
Student
Loan Interest
Deduction |
Above-the-line tax
deduction. |
$2,500
deduction. |
$70,000 – $85,000 $124,800 – $154,800 (MFJ) |
Qualified Business Income
Threshold amounts for qualified business income limitations are:
- $329,800 Married Filing Jointly.
- $164,900 Single, Head of Household, Qualifying Widow(er).
- $164,925 Married Filing Separately.
Gift Exclusion
The annual gift exclusion for gifts to any person is $15,000.
Estate Tax Exclusion
The basic estate tax exclusion amount is $11,700,000.
