Offcanvas
(800) 644-1150

Year-End Tax Limits for 2021

As we get to the end of 2021, it’s a good idea to go over some of the tax laws – and specifically the tax limits – that we have here before the year actually draws to a close.  These are things you need to be aware of as you get ready to fill out that all-important tax return that’s due in April. 

First, although it may seem quite a while ago, we had the last round of stimulus payments sent out earlier in the year.  So who was eligible for the $1,400 this past year?   

The American Rescue Plan Act (or ARPA) signed into law by President Biden on March 11 qualifies you and your dependents for the full $1,400 payment if: 

  •  You’re an individual with an Adjusted Gross Income (or AGI) of up to $75,000 
  •  You’re a head of household with an AGI of up to $112,500 
  •  You’re a couple filing jointly with an AGI up to $150,000 

So for example, a couple with two children that earns $100,000 and files jointly, would receive $5,600—that’s $2,800 for both adults and $2,800 for both children.  What’s more, the relief bill includes a provision that allows any person who gives birth in 2021 to receive an additional $1,400 check for the baby. After the baby is born, the parents can receive the additional $1,400 after filing their tax return in 2022, assuming their AGI falls under the limits I mentioned a moment ago. 

Income Related Monthly Adjustment Amount

The next tax limit you should know about is in regards to the Income Related Monthly Adjustment Amount, or IRMAA.  We’ve mentioned this a few times before, but it bears repeating.  If you’re currently covered under Medicare, and your AGI in 2020 went over $91,000 for single people, or over $182,000 for married couples filing jointly, your premium in 2022 will rise to about $238 per person – an increase of $68 per month over what most others with less income will be paying.  The IRMAA will increase from there if you go past other thresholds, capping out at around $578 per person. 

Yes, it’s a weird calculation that’s based on your income from two years prior, but that’s how it works.  The good news is that in some cases, that increase is only temporary if the extra income was the result of a large one-time capital gain.  But you do need to be aware of the increased tax either way. 

Net Investment Income Tax

Then there’s another, more obscure tax that many people overlook: the Net Investment Income Tax, or NIIT.  Simply put, as an investor, you may owe an additional 3.8% tax if you have investment income and your modified adjusted gross income (MAGI) goes over a certain amount. 

So if you’ve got net investment income such as short- or long-term capital gains, qualified and non-qualified dividends, taxable interest, passive income, rental and royalty income, and a few others, and your AGI is over $200,000 for single filers or $250,000 for Married filing jointly, you may owe this extra 3.8% on your net investment income. 

How much you’ll actually have to pay is based on how far above those NIIT limits you actually are.  If your AGI is only a little bit over, you’ll probably owe less than someone who’s high above that limit.  The actual workings of it can get a little complicated, but you need to know that if your AGI is high enough, and you’ve got net investment income, you may get the “privilege” of paying more income tax. 

Tax Loss Harvesting

One way to get that net investment income down may be through a technique called Tax Loss Harvesting.  This may work really well for someone who’s got some stocks that are worth less than your current tax basis.  The idea is that you sell an underperforming investment, one where you’ve got a loss instead of a gain, and then use that loss to reduce your other taxable capital gains — and potentially offset up to $3,000 of your ordinary income as well 

Of course, as with any tax strategy, there are certain pitfalls to watch out for, like restrictions on what types of losses you can offset, as well as something called the Wash Sale Rules, which will affect your ability to use this strategy.  But it’s something to consider here as we wrap up the year. 

Okay – we’ve had lots of information here, so if you need more guidance or if you’d like to get a handle on managing your taxes going forward, give us a call here at Lucia Capital Group; we can help you with all of it.  We do this every single day.  How can we help you?  Just let us know! 

Important Information:

The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy will be profitable for a client's or prospective client's portfolio, thus, investments may result in a loss of principal. Accordingly, no client or prospective client should assume that the information presented serves as the receipt of, or a substitute for, personalized advice from LCG or from any other investment professional.

You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.

Rick Plum is a registered representative with, and securities and advisory services offered through LPL Financial, a registered investment advisor and member FINRA/SIPC. The investment professionals are affiliated with LPL Financial and are conducting business using the name Lucia Capital Group, a separate entity from LPL Financial.

Start Your Strategy

Personalized investment advice and support to help grow your portfolio