11/04/2020

What the 2021 COLA Numbers Mean for You

The IRS has announced its 2021 cost-of-living adjustments

The Internal Revenue Service (IRS) recently announced its 2021 cost-of-living adjustments. Many increased to account for inflation, but some remained at 2020 levels.

Under the Tax Cuts and Jobs Act (TCJA), annual inflation adjustments are calculated using the chained consumer price index (also known as C-CPI-U). This increases tax bracket thresholds, the standard deduction, certain exemptions and other figures at a slower rate than was the case with the consumer price index previously used, potentially pushing taxpayers into higher tax brackets and making various breaks worth less over time. The TCJA adopted the C-CPI-U on a permanent basis.

Individual Income Taxes

Tax-bracket thresholds increase for each filing status but, because they are based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10 percent bracket increases by $75 to $150, depending on filing status, but the top of the 35 percent bracket increases by $3,125 to $6,250, again depending on filing status.

Please select this link to read the complete blog post from OSAE Member Clark Schaefer Hackett (CSH).