New Mileage Rates and Retirement-Related Changes for 2021
Angela Lawrence, Quality Control Coordinator at Klatzkin, contributed to this post.
With the calendar turning to January 2021, new standards came into effect that impact taxpayers who use their vehicles for specific purposes or contribute to retirement accounts. Let’s look at changes related to standard mileage rates and retirement accounts in 2021, as announced by the IRS.
Standard Mileage Rates
In late December 2020, the IRS announced the new standard mileage rates that will be used to calculate the deductible costs of operating a vehicle for business, charitable, medical, and moving purposes in 2021. Effective January 1, 2021, the standard mileage rates for the use of cars, vans, pickups, and panel trucks are:
- 56 cents per mile driven for business use (down from 57.5 cents in 2020)
- 16 cents per mile driven for medical purposes (down from 17 cents in 2020)
- 16 cents per mile driven for moving purposes, only for qualified active-duty members of the Armed Forces who are moving under orders (down from 17 cents in 2020)
- 14 cents per mile driven for charitable purposes (unchanged from 2020)
Standard mileage rates are based on annual studies of the costs of operating a vehicle (business use) and variable costs (medical and moving purposes). Rates for charitable purposes are set by statute. Taxpayers have the option of using the standard rates or calculating the actual costs of vehicle use. It should also be noted that taxpayers cannot claim an itemized deduction for unreimbursed employee travel expenses, per changes implemented under the Tax Cuts and Jobs Act in 2018.
Retirement-Related Changes
In late October 2020, the IRS announced changes coming to various retirement plans in 2021, which are now in effect.
If they meet specific conditions, taxpayers can deduct contributions to traditional IRAs; however, the allowable deduction can be reduced based on filing status and income levels. Annual contribution limits to IRAs remain $6,000, and the catch-up contribution limit for people age 50 and over is still $1,000.
The increased income phase-out ranges for making deductible contributions to traditional IRAs in 2021 are as follows:
- For single taxpayers covered by an employer’s retirement plan, the range is $66,000 to $76,000.
- For married couples filing jointly where the spouse making the IRA contribution is covered by an employer’s retirement plan, the range is $105,000 to $125,000.
- For an IRA contributor who is not covered by an employer’s retirement plan but is married to someone covered, the deduction is phased out if the couple’s income is between $198,000 and $208,000.
- However, if the taxpayer is covered by an employer’s retirement plan and is also married but files separately, the range remains $0 to $10,000.
The income limits for taxpayers making contributions to Roth IRAs have increased for 2021 and are as follows:
- For single taxpayers and heads of household, the phase-out range is $125,000 to $140,000.
- For married couples filing jointly, the phase-out range is $198,000 to $208,000.
- However, if the taxpayer making the contribution is married but files separately, the range remains $0 to $10,000.
For low and moderate-income workers, the Saver’s Credit’s income limits have increased to $66,000 for married couples filing jointly; $49,500 for heads of household; and $33,000 for single taxpayers and married individuals filing separately.
The main employee contribution limits have not changed for 2021. Employees who contribute to 401(k) plans, 403(b) plans, most 457 plans, and the Thrift Savings Plan are still limited to contributions of $19,500. For employees, age 50 and over, the catch-up contribution limit remains $6,500.
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If you have questions about the information outlined above or need assistance with a tax or retirement-related issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.
©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.