IRS provides tax inflation adjustments for the tax year 2021.

The IRS has announced the annual inflation adjustments in the tax year 2021 for around 60 tax provisions. These provisions would include the changes in the tax rates and also the other tax changes.

By the Consolidated Appropriation Act of 2020, there has been an increase in the minimum amount of tax addition that is done for your failure of filing tax returns within 60 days from the due date. Beginning with the tax returns that are due after 31^st December 2019, the additional tax which must be paid would be $435 or 100% of the amount of tax which is due and this increase is a rise from $330.

Let us have a look at the tax items of the tax year 2021 which would be of great interest to the taxpayers.

• Standard Deduction. 

• For the married couples who are filing their tax returns jointly for the tax year 2021, the Standard Deduction rises to $25,100 which is an increase of $300 from the previous year.
• For the married couples who are filing their tax returns separately or for the single individuals, the Standard Deduction would rise to $12,550 which is a rise of $150 from the prior year.
• For the heads of the households, the Standard Deduction would be $18,800 for the tax year 2021 which is an increase of $150 from the previous year. 

• Personal Exemption.

 The Personal Exemption for the tax year 2021 would remain 0 as it was for the tax year 2020. 

• Marginal Rates.

• For those taxpayers who are filing tax returns as single individuals with an income that is greater than $523,600, the marginal tax rate is 37%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $628,300.
• For those taxpayers who are filing tax returns as single individuals with an income that is greater than $209,425, the marginal tax rate is 35%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $418,850.
• For those taxpayers who are filing tax returns as single individuals with an income that is greater than $164,925, the marginal tax rate is 32%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $329,850.
• For those taxpayers who are filing tax returns as single individuals with an income that is greater than $86,375, the marginal tax rate is 24%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $172,750.
• For those taxpayers who are filing tax returns as single individuals with an income that is greater than $40,525, the marginal tax rate is 22%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $81,050.
• For those taxpayers who are filing tax returns as single individuals with an income that is greater than $9,950, the marginal tax rate is 12%. It is also the same for those taxpayers who are filing tax returns jointly as married couples and have an income greater than $19,900. 

• Itemized Deduction.

In the tax year 2021, there is no limitation on the itemized deductions. This limitation was eliminated by the Tax Cuts and Jobs Act. 

• Alternative Minimum Tax Exemption.

For individuals filing tax returns as single, the Alternative Minimum Tax Exemption is $73,600 which would start to phase out at $523,600. This Alternative Minimum Tax Exemption is $114,600 for those taxpayers who file their tax returns as Married Couple and this exemption phases out at $1,047,200. 

• Earned Income Credit.

For the qualifying taxpayers, the Earned Income Credit amount would be $6,728 which is an increase from the Earned Income Credit of $6,660 from last year. 

• Transportation Fringe Benefit.

The monthly limitation in the case of Transportation Fringe Benefit remains $270 which is considered as the Monthly limitation for the qualified parking. 

• Foreign Earned Income Exclusion.

For the tax year 2021, the Foreign Earned Income Exclusion is $108,700 which was $108,600 in the previous year. 

• AGI.

The AGI amount used by the taxpayers who are joint filers for the determination of the reduction in the Lifetime Learning Credit is $119,000. 

• Estates of Decedents 

The Estates of those decedents who have died during the tax year 2021 have an exclusion amount of $11,700,000 which is higher than the exclusion amount of $11,580,000 available for the estates of the descendants of 2020. 

Conclusion 

Hence, these tax provisions have been introduced by the IRS as a means to help the taxpayers with inflation adjustment.

IRS Taxes and student loans for NRIs in the US (PSLF).

 With the coronavirus spreading its adversities throughout the world, the entire economy across the world has been impacted. Millions of people in the US have lost their jobs and their economic lives have been impacted very badly. Under these circumstances, the different types of loans taken by the common people can be the reason for increased financial instability.

 Out of the different categories of loans, a student loan is the one that can create a lot of economic problems for the NRIs, especially during these COVID times.

 Public Service Loan Forgiveness (PSLF). 

The Public Service Loan Forgiveness (PSLF) is a federal program on which a lot of people rely to have their balances of Student loan to be forgiven. An NRI would be eligible to avail the PSLF if he can meet the below-mentioned criteria:- 

1. If you have a direct loan
2. If you are employed full-time in the public sector
3. If you are making 120 qualifying payments in a month under an income-driven repayment plan 

Which employment qualifies for PSLF? 

You should be working for the below-mentioned employers to be qualified for the PSLF.

1. You must be working in Government organizations at any level i.e. US Federal, State, Local or Tribal
2. You must be employed in a non-profit organization which is exempted from tax under Section 501(c)(3)
3. You must be employed in AmeriCorps or Peace Corps as a full-time volunteer 

You would not be able to qualify for availing the benefit of PSLF if you are employed in

• Labor Unions
• Partisan political Organizations
• For-profit organizations which include for-profit Government contractors 

Qualifying criteria of private loans for PSLF.

 Student loans that have been taken from private lenders are not eligible to qualify for PSLF. The loans such as Federal Direct Consolidation Loans, Federal Direct PLUS Loans, and Federal Direct Stafford Loans qualify for the PSLF. 

If you are choosing to consolidate your loan, only the qualifying payments that are made on the New Direct Consolidation Loan would be included in the 120 payments that are needed for the PSLF. If any payments are made before the consolidation of the loan then they would not be counted. 

How to apply for PSLF? 

There would be two scenarios when it is related to applying for the PSLF. 

• 120 qualifying points –

  In case you have already made the 120 qualifying points, then you must fill the Public Service Loan Forgiveness Application to apply.  You can easily find out the application for PSLF and the additional information needed at the Federal Student Aid. 

• Working for making 120 points-

  In case, you are working pro-actively towards making your 120 points then you should submit the PSLF Employment Certification yearly or if you are switching your employers.

 Taxability of the Forgiven loans. 

Any loan money which is considered forgiven under the PSLF would not be considered eligible for taxation. You would not have to pay any federal tax on the money that has been considered eligible under the PSLF.

 The forgiveness of your Student loan would not affect your tax returns for the year 2020. You would not have to report anything different on your Federal tax return than the normal amount to report a return. However, the amount of interest on a student loan that would be deducted will look different from the normal interest paid.

 CARES Act Relief under PSLF.

 According to the provisions of the CARES Act, all payments which were to be made by the common people to the US Department of Education for Federal Student Loans and accrual of interest were suspended until 30^th September 2020. However, the US President extended this suspension date until 31^st December 2020 by signing an executive order. If you are having a federal student loan, then you will not have to do anything separately for the suspension of the payoff or interest accrual. But, if you are interested in making the normal payments for the payback of the loan then you can do so.

 Moreover, even though the federal loan repayments have been put on hold but you can still qualify for the PSLF. In case, you are having a Direct Loan and you are employed under a full-time employer during the Suspension period, you would be receiving credit towards the PSLF as if you have made your monthly payments on time.

 Conclusion.

 So, these tax provisions and deductions with the student loans related to the NRIs in the US would help you to have a clear understanding of the tax structure.