What Is the Standard Deduction?

The standard deduction is the portion of income not subject to tax that can be used to reduce your tax bill. The IRS allows you to take the standard deduction if you do not itemize your deductions using Schedule A of Form 1040 to calculate taxable income. The amount of your standard deduction is based on your filing status, age, and whether you are disabled or claimed as a dependent on someone else’s tax return.

Key Takeaways

  • The standard deduction is the portion of income not subject to tax that can be used to reduce your tax bill.
  • You can choose between a standard deduction and itemized deductions.
  • The amount of your standard deduction is based on your filing status, age, and other criteria.

Understanding the Standard Deduction

Income tax is the amount of money that the federal or state government takes from your taxable income. It is important to note that taxable income and total income earned for the year are not the same. This is because the government allows a portion of the total income earned to be subtracted or deducted to reduce the income that will be taxed. Taxable income is usually smaller than total income due to deductions, which help to reduce your tax bill.

You can select one of two types of deductions: itemized deductions, or the standard deduction. Whichever one you choose is up to you, but you cannot use both. The itemized deduction option allows you to list all your tax-deductible expenses for the year, such as property tax, medical expenses, eligible charity donations, gambling losses, and other costs incurred that influence your bottom line tax figure.

Normally, if the total value of itemized deductions is higher than the standard deduction, you would itemize. Otherwise, you should opt for the standard deduction.

Not all taxpayers qualify for the standard deduction—nonresident aliens and their spouses, married people filing separately whose spouses itemized, and trusts and estates can't take it. Note, however, that students and business apprentices from India may be eligible to claim the standard deduction under Article 21 of the U.S.A.-India Income Tax Treaty.

2020 Standard Deduction Amounts

For 2020 taxes filed in 2021 the standard deductions are as follows:

  • $12,400 for single taxpayers
  • $12,400 for married taxpayers filing separately
  • $18,650 for heads of households
  • $24,800 for married taxpayers filing jointly
  • $24,800 for qualifying surviving spouses

If you are a single tax filer with a gross income of $80,400 for 2020, you can reduce your income by $12,400 to taxable income of $68,000. Your tax bill for income of $68,000 would be $8,028 or an effective tax rate (ETR) of 11.81%. If you paid taxes on $80,400, your bill would be $10,756, or an ETR of 13.38%.

2021 Standard Deduction Amounts

For 2021 taxes filed in 2022 the standard deductions increase to:

  • $12,550 for single taxpayers
  • $12,550 for married taxpayers filing separately
  • $18,800 for heads of households
  • $25,100 for married taxpayers filing jointly
  • $25,100 for qualifying surviving spouses

New standard deduction amounts were introduced by the Tax Cuts and Jobs Act at the end of 2017 and nearly doubled the previous amounts. They are set to expire Dec. 31, 2025.

Special Considerations

The federal income tax system and some states have higher standard deductions for people who are at least 65 years old and for people who are blind. Under federal guidelines, if you are 65 or older and single or a head of household, your standard deduction goes up $1,650 for 2020. If you are married filing jointly and one of you is 65 or older, your standard deduction goes up $1,300. If both of you are 65 or older, the deduction increases by $2,600.

If you are legally blind and single or a head of household, your standard deduction goes up by $1,650. If you are married filing jointly and one of you is blind, your standard deduction goes up $1,300. If both of you are legally blind, the deduction increases by $2,600. To qualify as blind, you must have a certified letter from an eye doctor stating that you have non-correctable 20/200 vision in your best eye or that your field of vision is 20 degrees or less.

You can also increase your standard deduction by the net amount of a disaster loss, but the loss must happen in a federally declared disaster area.

Standard Deduction vs. Itemized Deductions

The biggest reason taxpayers use the standard deduction instead of itemized deductions is that they don’t have to keep track of every possible qualifying expense throughout the year. Also, many people may find the standard deduction amount greater than the total they could reach if they added up all their eligible tax-deductible expenses separately.

This may be especially true given that the Tax Cuts and Jobs Act limited total state and local tax deductions to $10,000. It also limited the mortgage interest deduction on properties bought after Dec. 15, 2017, to loans of $750,000 (it was $1 million under previous rules).