HERE’S A QUICK LOOK at the world of taxes:
- The tax code was revamped in 2017—the most extensive rewrite since 1986. Most of the 2017 tax cut went to corporations. The new law has been a mixed bag for individuals, who now enjoy lower tax rates but also lost valuable deductions. Most households have seen their tax bill decline, but a significant minority are paying more. Despite hopes that the tax code would be simplified, that goal proved elusive. The tax code remains littered with a flabbergasting array of special taxes, deductions, credits and tax-favored savings accounts.
- The standard IRA contribution is $6,000 in 2021 and 2022, while the contribution limit for 401(k) plans is $19,500 in 2021 and $20,500 in 2022.
- In 2021 and subsequent years, minimum distributions from retirement accounts are required to begin at age 72, up from 70½ under the old rules.
- A third of all private sector workers don’t have access to an employer-sponsored retirement plan, whether it’s a traditional pension plan or a 401(k) plan. For these workers, it’s especially important to contribute to an IRA and to fund a regular taxable account.
- An estimated 61% of households didn’t pay any federal income tax in 2020, according to the Tax Policy Center, which is a joint venture of the Urban Institute and Brookings Institution.
- For all taxpayers, the average federal tax rate in 2018 was 12.3% of total income, according to IRS figures.
- New York, Hawaii and Vermont have the highest total state tax burden, while Alaska, Tennessee and Wyoming have the lowest, according to WalletHub. The ranking considers property taxes, individual income taxes, and sales and excise taxes.
- Where does the federal government’s revenue come from? Individual income taxes account for 51%, Social Security and Medicare taxes 31% and corporate income taxes 9%.
Next: Income Tax Basics
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