Q: Are there any significant tax changes for 2022?
A: Congress continues to debate more significant changes to the tax code, but it is still unclear when a final bill will make its way to President Biden’s desk. In the meantime, the IRS did make some notable adjustments. The beginning of the year is always a good time to check on these adjustments to ensure you have a reasonable idea of what you will owe and can save in the upcoming year.
Here are some important adjustments taking effect in 2022:
- The Standard Deduction was increased from $25,100 to $25,900 for married couples who file jointly. Single filers and those who are married but file separately will have their standard deduction increased by $400 to $12,950. Head of households will also get a $600 increase in their standard deduction to $19,400.
- The tax rates remained the same, but the income brackets were increased slightly.
|2022 Tax Brackets|
|10%||$20,550 or less||$10,275 or less||$14,650 or less||$10,275 or less|
|12%||Over $20,500||Over $10,275||Over $14,650||Over $10,275|
|22%||Over $83,550||Over $41,775||Over $55,900||Over $41,775|
|24%||Over $178,150||Over $89,075||Over $89,050||Over $ 89,075|
|32%||Over $340,100||Over $170,050||Over $170,050||Over $170,050|
|35%||Over $431,900||Over $215,950||Over $215,950||Over $215,950|
|37%||Over $647,850||Over $539,900||Over $539,900||Over $323,926|
- Likewise, the capital gains rates remained the same, but the income bracket that determines the rate one pays increased.
Long-Term Capital Gains Tax Rates for the 2022 Tax Year
|fILING STATUS||0% RATE||15% RATE||20% RATE|
|Single||Up to $41,675||$41,676 – $459,750||Over $459,750|
|Married filing jointly||Up to $83,350||$83,351 – $517,200||Over $517,200|
|Married filing separately||Up to $41,675||$41,676 – $258,600||Over $258,600|
|Head of household||Up to $55,800||$55,801 – $488,500||Over $488,500|
- The maximum contribution amounts into employer provided retirement plans, such as 401(k)s, 403(b)s, 457 plans and the federal government’s Thrift Savings Plan were adjusted upward. The employee contribution limit increased from $19,500 to $20,500, but the catch-up contribution for employees age 50 and older remains at $6,500. Total defined contribution limits for employee and employer contributions were increased from $58,000 to $61,000. The IRS compensation limit, for which employer contributions can be based, was increased from $290,000 to $305,000.
- For SIMPLE retirement accounts the contribution limit was increased from $13,500 to $14,000, and the catch-up contribution remained the same at $3,000.
- The maximum SEP IRA contribution was increased from $58,000 to $61,000 with maximum countable compensation increased to $305,000.
- The annual contribution limit for an Individual Retirement Account (IRA), for both pretax or Roth or a combination, remains at $6,000 for 2022. The catch-up contribution limit remains at $1,000. The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (MAGI) between $68,000 and $78,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $109,000 to $129,000 for 2022. For an IRA contributor not covered by a workplace retirement plan and who is married to someone who is covered, the deduction is phased out if the couple’s income is between $204,000 and $214,000 in 2022.
- The Roth IRA modified adjusted gross income(Mphase-out range increased to $204,000 to $214,000 for married couples filing jointly, up from $198,000 to $208,000 in 2021. For singles and heads of household, the income phase-out range is $129,000 to $144,000, up from $125,000 to $140,000 in 2021. If your income exceeds these amounts, you can open a non-deductible IRA and convert it to a Roth IRA (the current tax bill being debated in Congress may eliminate the ability to utilize a backdoor IRA, but as of writing this article, nothing has been passed).
- The income limit for the saver’s credit is $68,000 for married couples filing jointly; $51,000 for heads of household; and $34,000 for singles and married filing separately.
- The Social Security taxable wage base was increased to $147,000 from $142,800.
As you plan for tax year 2022, we encourage you to speak with your CPA. Beyond typical tax planning, they may offer additional strategies to minimize your tax impact throughout the year.
Jeff Witz, CFP® welcomes readers’ questions. He can be reached at 800-883-8555 or at firstname.lastname@example.org.
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