Inflation Adjustments for 2022 |
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As the end of 2021 grows near, many Americans around the country are looking forward to welcoming the 2022 New Year. As of Wednesday November 10th, the IRS released their annual inflation adjustments for the 2022 tax year, including tax rate schedules, tax tables and cost-of-living adjustments. The IRS has also recently released the 2022 adjustments for retirement plans which increases the amount that can be contributed to certain plans. With Year-End Tax Planning just around the corner, understanding these key changes could help taxpayers comprehend where they stand for the coming 2022 tax year and allow them plenty of time to make the necessary adjustments to maximize their tax saving opportunities. Keep in mind that there is also pending legislation that may result in additional changes that could impact 2022 adjustments. |
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Changes in Personal Income Tax Brackets & Tax Rates
The The chart below displays the new 2022 incremental income levels matched to their tax bracket. All 7 tax rate percentages remain the same.
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Increase in Standard Deduction
In 2022, the Standard Deduction amounts has increased for each of the following filing categories:
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The additional standard deduction amount for the aged or the blind is $1,400 and $1,750 for unmarried taxpayers. The standard deduction for an individual who may be claimed as a dependent by another taxpayer cannot surpass the greater of $1,150 or the sum of $400 and the individual’s earned income (not to exceed the regular standard deduction amounts).
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Alternative Minimum Tax (AMT)
The AMT exemption amounts for the 2022 tax year are:
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The adjusted changes for 2022 are:
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Child Tax Credit – The inflation adjustment increases the refundable portion of the Child Tax Credit will increase to $1,500. ($100 increase)
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Earned Income Credit – The maximum amount available is $6,935 ($207 increase) for qualifying taxpayers who have three or more qualifying children. Phaseouts apply.
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Adoption Credit – The credit allowed for an adoption of a child with special needs is $14,890 which phases out for taxpayers with MAGI from $223,410 to $263,410.
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Lifetime Learning Credit – Credit will phase out for taxpayers with MAGI more than $80,000 for single; $160,000 for married filing jointly.
- Medical Savings Accounts (MSA)
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Health Flexible Spending Arrangements - the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $2,850 ($100 increase). For plans that permit the carryover of unused amounts, the maximum carryover amount is $570 ($20 increase).
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Foreign Earned Income Exclusion |
The amount of qualifying Foreign Earned Income excluded from income tax $112,000, ($3,300 increase). |
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The 2022 annual exclusion for gifts is $16,000 per person gifted ($1,000 increase).
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Qualified Business Income Deduction under Section 199
(Pass-through deduction)
Sole-proprietors and owners of pass-through businesses are eligible for a deduction of up to 20% to bring the tax rate lower for qualified business income. Below are the threshold & phase-in amounts:
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Federal Estate Tax Unified Credit - Estates of decedents who die in 2022 have a basic exclusion amount of $12,060,000 ($360,000 increase).
Section 179 deduction for business assets – The maximum deduction has increased to $1,080,000 with the phase-out limit threshold of $2,700,000.
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Retirement Accounts
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401(K), 403(b), 457 Plans - Employees in these plans will still be able to contribute up to $20,500 ($1,000 increase from 2021). Likewise, the catch-up contribution limit for individuals aged 50 and over will remain unchanged at $6,500.
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SIMPLE Retirement Accounts - The limitation of elective deferral limits for SIMPLE retirement accounts increased to $14,000 ($500 increase). The SIMPLE catch-up limit also remains unchanged at $3,000.
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Traditional IRA – Contribution limits remain unchanged at $6,000 per person, with an additional $1,000 catch-up amount allowed for those aged 50 and over.
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When a taxpayer meets certain conditions, their contributions to a Traditional IRA are deductible on their tax return. These conditions include filing status, AGI limits, and whether the taxpayer and/or spouse are covered by a workplace retirement plan. For 2022, these phase-out AGI limits were increased as follows: |
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ROTH IRA – Contribution limits are the same as for an IRA - $6,000 plus an additional $1,000 for those aged 50 and over. The phase-out range for taxpayers making contributions is as follows:
- Singles and Head of Households – Phase-out range is $129,000 - $144,000 ($4,000 increase)
- Married Filing Jointly – Phase-out range is $204,000 - $214,000 ($6,000 increase)
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Married filing Separately – The phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
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How can we help you prepare!
These adjustments are some of the many tax provisions modified for the 2022 tax year. With an ever-changing economy and pending legislation, knowing your tax options is highly important. If you would like a more in-depth discussion as to how these or any other tax provisions may affect you or your business, feel free to contact our office. We would be happy to assist you in developing the right financial tax plan for you.
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GRIFFING & COMPANY, P.C.
One Sugar Creek Center Blvd., Suite 650
Sugar Land, TX 77478
(281) 491-8866 Fax (291) 491-8998
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