The important "trigger" income levels 2021

[Gumby]

CORRECTED TO POST #32 IN THIS THREAD


Similar to what I did last year, here is a list of important “trigger” income levels for 2021.

Numbers are actual AGI/MAGI (i.e. - before standard or itemized deductions) unless indicated as Taxable Income by an asterisk * which means you can add $25,100 MFJ/$12,550 single if you use the standard deduction. Note also that MAGI and AGI are often not the same in different sections of the tax code. If you are close to one of the limits, ensure you know what is and is not included in income for that particular limit. This thread is a good example of how important it is to know precisely what counts in MAGI for your particular issue. https://www.early-retirement.org/fo...contribute-to-roth-ira-for-2020-a-108104.html

I have put social security taxation levels in a separate post (here https://www.early-retirement.org/forums/f28/the-important-trigger-income-levels-2020-a-101090.html), because it is a little complicated (not too bad) and highly dependent on exactly how much social security you receive.

This is based on current law; there may be changes (e.g. – a new CARES Act or a SECURE Act 2.0). As with last year, this is a collaborative effort, so if you have corrections or additions, please post them here and I will adjust this first post as necessary.

Link to 2020 thread is here - https://www.early-retirement.org/forums/f28/the-important-trigger-income-levels-2020-a-101090.html


Income level/effect (as of 1/1/2021) This for Married Filing Jointly. Numbers for single taxpayers are listed separately below.

$19,901* - 12% marginal tax bracket for ordinary income

$37,920 - maximum two people collecting Social Security prior to FRA can earn ($18,960 each) in W-2 income before Social Security is reduced

$39,501 – Savers Credit drops from 50% to 20%

$43,001 – Savers Credit drops from 20% to 10%

$66,001 – Savers Credit eliminated

$68,960 - 400% FPL -- ACA subsidy reduced to the point where premium can be 8.5% of income (Household of two, Lower 48)(note that ACA subsidy levels are based on the prior year’s poverty levels)

$80,801* - Long term capital gains taxed at 15%

$81,051* - 22% marginal tax bracket for ordinary income.

$105,001 - begin limiting traditional IRA deduction amounts (if you have a retirement plan at work)

$125,001 - no traditional IRA deductions allowed

$140,001 - Student loan interest deduction (up to $2500) phaseout begins

$150,001 - Child tax credit (CTC) first phaseout begins (-$50 per $1k income above. Minimum of $2000.)

$160,001 - Begin phaseout of American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) for college costs (note that this is not indexed for inflation)

$170,001 - Student loan interest deduction ends

$172,751* - 24% tax bracket

$176,001 - IRMAA Medicare surcharge begins (based on income two years prior)

$180,000 - AOTC/LLC are eliminated

$198,001 - begin limiting Roth contribution amounts

$208,001 - no Roth contributions allowed (consider backdoor Roth)

$222,001 - IRMAA level 2 surcharge

$250,001 - NIIT 3.8% surcharge (note this is not indexed for inflation)

$276,001 - IRMAA level 3

$329,851* - 32% tax bracket

$330,001 - IRMAA level 4

$400,001 - Child Tax Credit second phaseout begins (-$50 per $1k income down to zero)

$418,851* - 35% tax bracket

$501,601* - 20% long term capital gains rate



Income level/effect (as of 1/1/2021) This is for Single Filers vv. Numbers for Married Filing Jointly are listed separately above ^^.

$9951* - 12% marginal tax bracket for ordinary income

$18,960 - maximum a single person collecting Social Security prior to FRA can earn in W-2 income before Social Security is reduced

$19,751 – Savers Credit drops from 50% to 20%

$21,501 – Savers Credit drops from 20% to 10%

$33,001 – Savers Credit eliminated

$40,401* - Long term capital gains taxed at 15%

$40,526* - 22% marginal tax bracket for ordinary income.

$51,040 - 400% FPL -- ACA subsidy reduced to the point where premium can be 8.5% of income (household of 1, Lower 48)

$66,001 - begin limiting traditional IRA deduction amounts. (if you have a retirement plan at work)

$70,001 - Student loan interest deduction (up to $2500) phaseout begins

$75,001 - Child tax credit (CTC) first phaseout begins (-$50 per $1k income above. Minimum of $2000.)

$76,601 - no traditional IRA deductions allowed.

$80,001 - Begin phaseout of American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) for college costs (note that this is not indexed for inflation)

$85,000 - Student loan interest deduction ends.

$86,376* - 24% tax bracket

$88,001 - IRMAA Medicare surcharge begins (based on income two years prior)

$90,001 - AOTC/LLC are eliminated

$111,001- IRMAA level 2 surcharge

$125,001 - begin limiting Roth contribution amounts

$138,001 - IRMAA level 3

$140,001 - no Roth contributions allowed (consider backdoor Roth)

$163,301* - 32% tax bracket

$164,926 - IRMAA level 4

$200,001 - Child Tax Credit second phaseout begins (-$50 per $1k income down to zero)

$200,001 - NIIT 3.8% surcharge

$209,426* - 35% tax bracket

$445,851* - 20% long term capital gains rate
__________________

 

[Gumby]

Taxation of social security payments

Because it varies so much between people depending on precisely how much social security you receive, I took the social security taxable amount calculation out of my list in the preceding post. I hope that this post will help you calculate your own numbers.

Note carefully that this post is telling you how to calculate what percentage of your social security will be taxed, not the tax rate that will apply. Your tax rate is determined by your overall taxable income. Note also that social security taxation is not a "cliff" like the ACA subsidy. Once you hit the initial trigger, the percentage only gradually increases as income rises.

Social security taxation is based on your "provisional income", which is 1/2 of your social security plus your other AGI (note that, for purposes of calculating provisional income only, your other AGI includes otherwise tax exempt municipal bond interest). AGI is the income before any standard deduction.

Your social security starts getting taxed when your provisional income passes $32k MFJ/$25k Single. The percentage of your benefit subject to tax increases for each additional dollar in AGI. The exact percentage will depend on the particular mix of social security income and other income that together make up provisional income. Thus, for example, if you and your spouse together had $28k per year in social security and $25k per year in other AGI (tIRA withdrawals, pension, part time work, etc), your provisional income would be $39k per year (1/2 of 28 plus 25 = 39) and $3500 (12.5%) of your social security benefit would be taxable.

Once provisional income hits $44k/$34k, progressively more SS gets taxed, up until the maximum 85% of it is subject to taxes at whatever your marginal tax rate is. The point at which you reach 85% of SS being subject to taxation differs for everyone, depending on their social security amount.

My recommendation is to calculate your own levels by going through the IRS worksheet here https://www.irs.gov/pub/irs-pdf/p915.pdf#page=16 and plug in your anticipated numbers. The form is fairly clear and the math is not at all daunting.
Here are links to the Form 1040 and Schedule 1 to help.
https://www.irs.gov/pub/irs-pdf/f1040.pdf
https://www.irs.gov/pub/irs-pdf/f1040s1.pdf

Here is a shortcut to determine the total income level (including all social security) at which an MFJ filer will have 85% of social security subject to taxation.

Yearly (full) social security = SS; Other Income = OI; Total Income = TI

TI = OI +SS

FOR SS > $12,000 per year -----> TI = 1.5 SS + 36,941

FOR SS < $12,000 per year -----> TI = .9118 SS + 44,000

At the end of the day, your taxable income will be the taxable portion of your social security plus your other AGI (but not any municipal bond interest) minus any deductions, and you will be taxed in accordance with your tax bracket. So, in the case of the couple mentioned earlier, their taxable income would be their other AGI ($25k) plus the taxable portion of their social security ($3.5k) minus the standard deduction ($25.1k), equals $3400. They would be in the 10% tax bracket.

P.S. - Of passing note to policy wonks is the fact that while social security increases every year due to the COLA provisions, the Social Security thresholds for taxation are not indexed to inflation. This is a form of "creeping" tax increase on social security benefits.

 

[harllee]

Gumby--thanks so much for doing this, very helpful for planning purposes.

 

[grasshopper]

This is really great tax on Social Security is hard.

By the way TurboTax Taxcaster is available on Google Play for 2020.

I have TT deluxe loaded on my W10 already but useless because Sch D, and Roth conversions aren't on the download version yet.

 

[audreyh1]

This is really great tax on Social Security is hard.

By the way TurboTax Taxcaster is available on Google Play for 2020.

I have TT deluxe loaded on my W10 already but useless because Sch D, and Roth conversions aren't on the download version yet.

For 2021?

 

[Chuckanut]

Thanks Gumby.

This information is already copied and stored in my 2021 Tax Folder.

 

[Rocket Man]

Very helpful. Thank you!

 

[Rocket Man]

...


Similar to what I did last year, here is a list of important “trigger” income levels for 2021. ..._

I cannot get the link to print this out. Can you provide one like you provided for Roth conversion? Thanks!

 

[Gumby]

I cannot get the link to print this out. Can you provide one like you provided for Roth conversion? Thanks!

Attached is the Word document used to create my post. It does not contain the links and, unlike my original post, will not be updated. Nonetheless, you can use it to print. Or you could block and print directly from my post.

 

[TN Jim]

Thanks

 

[tb001]

Thanks for doing this again. This is such a useful summary!

 

[Koolau]

Thanks, Gumby. I never do our own taxes, but this helps with the big picture. We DID go ahead and take our RMD this year (plus a little). We actually do spend the money each year.

Good to keep track of how high we can go in the near future w/o tripping over any 'mines.' Remind us to double your salary next year since YMMV.

 

[phil1ben]

Thank you - Very Helpful

However, aren't IRA Deductions only limited if covered by a retirement plan at work? If not covered, it is my understanding you can take the full deduction regardless of income.

For 2020 the limit is $7,000.00 if over 50.

Could someone confirm my understanding?

For

Thank you.

 

[Gumby]

Thank you - Very Helpful

However, aren't IRA Deductions only limited if covered by a retirement plan at work? If not covered, it is my understanding you can take the full deduction regardless of income.

For 2020 the limit is $7,000.00 if over 50.

Could someone confirm my understanding?

For

Thank you.

You are correct. https://www.irs.gov/retirement-plans/ira-deduction-limits I have noted the distinction in my original post.

 

[Travelfreek]

Love this, Gumby! When all the CARES act stimulus was announced earlier this year, I remember someone (in authority) saying that if we qualify income wise for our 2020 income (which we will), we would finally receive it. Now I'm seeing that tomorrow is the deadline to claim it. We made too much $$$ in both 2018 and 2019. We paid our house off over those 2 tax years so we had big IRA withdrawals that then precluded us from the Stimulus payments of $1200 each (MFJ). Can someone corroborate what I heard?

 

[SecondCor521]

Love this, Gumby! When all the CARES act stimulus was announced earlier this year, I remember someone (in authority) saying that if we qualify income wise for our 2020 income (which we will), we would finally receive it. Now I'm seeing that tomorrow is the deadline to claim it. We made too much $$$ in both 2018 and 2019. We paid our house off over those 2 tax years so we had big IRA withdrawals that then precluded us from the Stimulus payments of $1200 each (MFJ). Can someone corroborate what I heard?

You'll be able to claim it on your 2020 return which you'll file in a few months.

Tomorrow may be some sort of deadline for the advance payment of the credit (when all your friends were getting direct deposits of the credit) based on 2018/2019 information, but if so, that's only for the advance of the credit. If you qualify based on 2020 information, you'll file for it on your 1040 in a few months and it'll either be subtracted from what you owe or refunded to you depending on your overall 2020 tax situation.

 

[RetireBy90]

So should I expect a 1099 if I received $23 ?

 

[SecondCor521]

So should I expect a 1099 if I received $23 ?

Depend on who paid you that $23 and what it's for. They're not required to send you a 1099-NEC if the total payments to you during the year were less than $600. But some payers might send 1099s to everyone. For 1099-INTs, they're not required to send you one if it's less than $10 in interest during the year; most banks I know follow that rule.

It's still taxable (if interest or NEC) and you're still supposed to report it even if you don't receive a 1099, but I know many people don't follow that rule.

The best way to know would be to ask whomever paid you the $23; they should know what their 1099 practices are.

If the $23 was an advance payment for the CARES Act tax credit, it's not taxable and you won't receive a 1099. Although as Gumby notes below you'll account for it on your return when figuring any additional credit you might be entitled to.

 

[Gumby]

So should I expect a 1099 if I received $23 ?

If you are saying that you received $23 on account of the the CARES Act, you will receive no Form 1099. You will account for the $23 when you calculate and file your 2020 taxes next year. That is, if you are single, you get a refundable tax credit of $1200, but you have already received $23 of it.

 

[RetireBy90]

If you are saying that you received $23 on account of the the CARES Act, you will receive no Form 1099. You will account for the $23 when you calculate and file your 2020 taxes next year. That is, if you are single, you get a refundable tax credit of $1200, but you have already received $23 of it.

Thanks, yes it was from CARES act. Just received my TT for 2020, so I’ll be able to see how it accounts for the big check. I’ll also need to go back to earlier checking account statements to verify amount. What a PIA for $23.

 

[ArmchairMillionaire23]

CORRECTED TO POST #14 IN THIS THREAD


Similar to what I did last year, here is a list of important “trigger” income levels for 2021.

Thanks for posting all of this information. It will be very useful for planning purposes.

$39,501 – Savers Credit drops from 50% to 20%

$43,001 – Savers Credit drops from 20% to 10%

I still find it amazing that a $3,501 change in income can make a $1,600 difference in a couple's tax refund. If a couple, after maxing out all their retirement contributions and savings ends up with an AGI of $39,500 or lower they get a $2,000 (50% of the $4,000) saver's credit. If they end up with an AGI over $43,001 (up to $66,000) they only get a $400 saver's credit.

 

[aaronc879]

Thanks for posting all of this information. It will be very useful for planning purposes.



I still find it amazing that a $3,501 change in income can make a $3,600 difference in a couple's tax refund. If a couple, after maxing out all their retirement contributions and savings ends up with an AGI of $39,500 or lower they get the $4,000 saver's credit. If they end up with an AGI over $43,001 (up to $66,000) they only get a $400 saver's credit.

Wrong! The maximum contribution that can go towards the credit is $4000 for a couple. So the $39,500 couple gets a $2000 credit($4000X50%) and the $43,001 couple gets $400 credit($4000X10%). Also, it is not refundable so the lowest income people can't even get the full credit. I have had a AGI of around $15K and saved $2000+ which should be a $1000 credit but my total federal tax liability was only around $300 so that is what I got for a credit.

 

[Gumby]

Thanks for posting all of this information. It will be very useful for planning purposes.



I still find it amazing that a $3,501 change in income can make a $3,600 difference in a couple's tax refund. If a couple, after maxing out all their retirement contributions and savings ends up with an AGI of $39,500 or lower they get the $4,000 saver's credit. If they end up with an AGI over $43,001 (up to $66,000) they only get a $400 saver's credit.

That's not exactly how the savers credit works. It is a credit for a percentage of only the first $2000 that an individual contributes to a retirement savings account in a year.

So, for example, suppose a couple together contributed $6000 to their IRAs ($3k each). And suppose that after that IRA contribution, they had an AGI of $39,500 exactly. They are still in the 50% credit territory, but recall that the credit only applies for the first $2000 of the amount contributed to the IRA per person, not to the whole $3000. So the max credit they can claim is $2000 = $2000 per person contribution limit x 50% credit x 2 people. Now suppose that they had an AGI of $43,001. Then they are in 10% territory. So now their credit is $400 = $2000 per person contribution limit x 10% x 2 people. That's only a $1600 reduction in credit for a $3501 increase in AGI. Still ouch, but not quite as bad.

More importantly, the credit is non-refundable. So while it can reduce the tax you otherwise would owe, it does not increase your refund one penny.

There are a number of government programs that have similar "cliffs", like ACA subsidies and IRMAA surcharges. The best you can do is be aware of them.

If it gives you any comfort, you could look at the converse and say that if they had each contributed just another $1751 to their IRA that year, they would have lowered their combined AGI to $39,499 and gained $1600 in tax credit. Indeed, even if they immediately withdrew that $3502 the next year and paid the tax (they'd be in the 12% bracket) and 10% penalty, for a total cost of 22% of $3502, they would still be money ahead (to the tune of $830).

 

[ArmchairMillionaire23]

Wrong!

I updated the post. I read the IRS form incorrectly, sorry. I'm not sure how that happened as the IRS makes their forms so easy for the average person to understand.
We maxed out my 401(k) and both of our IRA account contribution limits in 2019. Our tax liability was enough where the $400 (10%) went straight to our refund. Had the credit been $2,000 we might not have gotten all of the credit based on what we paid in taxes but it would have been pretty close.
For 2021 I'm planning on maxing out my 401(k) at $26,000 (I'm 50!) and maxing out my Roth IRA and the wife's traditional IRA as well as both of our HSA accounts. If I can keep my overtime worked down hopefully we can at least reach the 20% if not the 50% level next year.
Now if we can only figure out how to contribute to the wife's 403(b) account next year. The school system's retirement plans and pay stubs are the most confusing I've ever seen. Even more so than IRS documents.

Thanks again, Gumby for the post. Very valuable information!

 

[SecondCor521]

Due to the December Consolidated Appropriations Act (famous for the additional EIP2 of $600 per person), the phaseouts for the Lifetime Learning Credit are now the same as for the AOTC.

"The CAA adopts a single phaseout for both the AOTC and the LLC, effective for tax years beginning after December 31, 2020. The credits will phase out beginning at $80,000 for single filers and ending at $90,000. For joint filers, they will begin to phase at $160,000 and disappear at $180,000."

- https://www.elliottdavis.com/consolidated-appropriations-act-brings-covid-19-relief-individuals/

OP needs to be updated.