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Posted by Eric Strawder on Wed, Dec 15, 2021 @ 11:20 AM

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The IRS and the Social Security Administration have released 2022 inflation-adjusted figures for more than 50 tax provisions. In addition to a 5.9% cost-of-living adjustment (COLA) for Social Security beneficiaries, details about adjustments to tax rate schedules, exemptions, and various thresholds for deductions and credits were announced. The tax year 2022 adjustments generally are used on tax returns filed in 2023.


Tax Rate Tables

The highest marginal tax rate for individuals of 37% applies in 2022 to taxable income over $647,850 for married couples filing jointly (up $19,550 from 2021) and $539,900 for single taxpayers (up $16,300 from 2021). See the end of this article for all of the individual and the estate and trust income tax rate tables for 2022.

The thresholds related to the 3.8% Medicare tax on unearned income and the 0.9% Medicare tax on wages and self-employment income remain at $250,000 for married couples filing jointly and $200,000 for single filers (these thresholds are not subject to annual inflation adjustments). Estates and trusts enjoy a slight increase in the 3.8% Medicare tax threshold, however, because that threshold is equal to the dollar amount at which the highest income tax bracket begins.

The 0% long-term capital gains rate for individuals applies in 2022 to taxable income not exceeding $83,350 for married couples filing jointly (up $2,550 from 2021) and $41,675 for single taxpayers (up $1,275 from 2021). The 15% long-term capital gains rate applies to taxable income between $83,351 and $517,200 (married taxpayers filing jointly), or to taxable income between $41,676 and $459,750 (single taxpayers). The 20% maximum long-term capital gains rate applies to taxable income over $517,200 for married couples filing jointly (up $15,600 from 2021) and $459,750 for single taxpayers (up $13,900 from 2021). As always, “ordinary income” represents the first layer of income; the long-term capital gains rate is based on the next layer of income consisting of long-term capital gains.

Alternative Minimum Tax (AMT)

For 2022, the AMT exemption increases from $114,600 to $118,100 for married couples filing jointly and from $73,600 to $75,900 for single filers. The AMT exemption is reduced by 25% of the amount by which alternative minimum taxable income in 2022 exceeds $1,079,800 for married couples filing jointly ($539,900 for single taxpayers).

For 2022, the 28% AMT rate applies to excess alternative minimum taxable income above $206,100 for married couples filing jointly and for single filers ($103,050 for married taxpayers filing separately).

Itemized Deductions and Standard Deduction

The standard deduction for married couples filing a joint return is slightly higher for 2022. The new standard deduction is $25,900 (up $800 from 2021). For single individuals and married couples filing separate returns, the standard deduction is $12,950 for 2022 (up $400). The 2022 standard deduction for heads of household increases to $19,400 (up $600).

Child Tax Credit

The amount of the child tax credit that may be claimed in 2022 for each qualifying child is $2,000. The child tax credit begins to phase out for married couples filing a joint return with modified adjusted gross income in excess of $400,000, or $200,000 for all other taxpayers. The child tax credit and the phase-out levels are not indexed for inflation, however the credit was temporarily raised to $3,000 (or $3,600 for children under age 6) for 2021 only. For lower-income taxpayers, a portion of the child tax credit for each qualifying child is refundable, and the refundable portion in 2022 is $1,500.

Estate and Gift Tax

For 2022, the lifetime exclusion from estate and gift tax has increased from $11.7 million to $12,060,000. The annual gift tax exclusion in 2022 has increased from $15,000 to $16,000. Gift splitting allows married couples to give up to $32,000 to a person in 2022 without making a taxable gift. The exclusion for gifts to a spouse who is not a citizen of the United States increases $5,000 to $164,000 for 2022.

Education

The Hope Scholarship credit (American Opportunity Tax Credit) is equal to 100% of the amount of qualified tuition and related expenses not in excess of $2,000, plus 25% of those expenses that exceed $2,000 but do not exceed $4,000. Because the eligible expenses are not indexed for inflation, the maximum credit remains $2,500. This credit begins to phase out for single individuals whose modified adjusted gross income (MAGI) exceeds $80,000 and at $160,000 for married couples filing joint returns (these amounts also are not adjusted for inflation).

For tax years beginning in 2022, the Lifetime Learning Credit also phases out at these same MAGI levels, which are no longer adjusted for inflation.

The $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for single individuals with MAGI in excess of $70,000 and for married couples filing joint returns with MAGI in excess of $145,000 in 2022. The deduction is completely phased out for taxpayers at 2022 MAGI of $85,000 for single individuals and $175,000 for married couples filing joint returns.

Kiddie Tax

The amount used to reduce the net earned income reported on a child’s return subject to the kiddie is $1,150 in 2022 (an increase of $50 over 2021). The same $1,150 amount is used to determine if a parent may elect to include a child’s gross income in the parent’s income and to calculate the kiddie tax.

Foreign Earned Income

For individual taxpayers who work overseas, the amount of foreign earned income that may excluded from taxation increases from $108,700 to $112,000 in 2022.

Limits for Qualified Retirement Plans

Several types of qualified retirement plans, including defined benefit accounts, 401(k)s, and other defined contribution plans, are subject to contribution or distribution limitations.

Defined Contribution Plans

The limits on elective deferrals to 401(k), 403(b), certain 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500 for 2022 (up $1,000 from 2021). The limit on annual additions to other types of defined contribution plans is increased in 2022 to $61,000 (up $3,000).

Defined Benefit Plans

The maximum amount a defined benefit plan may credit to a participant each year is increased in 2022 to $245,000 (up $15,000 from 2021).

Compensation Related Limits / Definitions

The annual compensation limit relating to the maximum compensation counted for an eligible employee in a qualifying plan is increased by $15,000 to $305,000 for 2022. The limitation used in the definition of a highly compensated employee is increased by $5,000 to $135,000. The dollar limitation concerning the definition of key employee “officers” in a top heavy plan is increased by $15,000 to $200,000 for 2022. The compensation amount relevant to the definition of control employee for fringe benefit valuation purposes in 2022 increases to $120,000 for officers and increases to $245,000 for other employees.

Individual Retirement Accounts (IRAs)

Eligible taxpayers can contribute up to $6,000 to an IRA (excluding catch-up contributions discussed below), which is unchanged for 2022. For taxpayers who are active participants in an employer-sponsored retirement plan, the deduction for making contributions to a traditional IRA is phased out for single taxpayers who have MAGI in 2022 between $68,000 and $78,000, up $2,000 from the 2021 amounts. For married couples filing a joint return, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $109,000 to $129,000 in 2022, up $4,000 from the 2021 amounts. For married couples filing a joint return, in which the spouse who makes the IRA contribution is not an active participant in an employer-sponsored retirement plan but the other spouse is a participant, the deduction is phased out if the couple’s 2022 income is between $204,000 and $224,000, up $6,000 from 2021 levels.

The MAGI phase-out range for taxpayers making contributions to a Roth IRA in 2022 is $204,000 to $214,000 for married couples filing jointly, up $6,000 from the 2021 amounts. For single taxpayers, the income phase-out range in 2022 is $129,000 to $144,000, up $4,000 from 2021 levels.

SIMPLE Retirement Accounts

The elective deferral limit for a SIMPLE plan is increased by $500 to $14,000 in 2022. The $3,000 catch-up amount for SIMPLE plans remains unchanged for 2022.

Social Security Wage Base Increases for 2022

The maximum amount of earnings subject to Social Security increased from $142,800 to $147,000 (up $4,200) in 2022. The Social Security Administration also reported that Social Security and Supplemental Security Income benefits will increase by 5.9% for 2022.

We have summarized the most common inflation adjustments here. For more information:

2022 Tax Rate Tables

Married Individuals Filing Joint Returns and Surviving Spouses
If Taxable Income Is: The Tax Is:
Not over $20,550 10% of the taxable income
Over $20,550 but not over $83,550 $2,055 plus 12% of the excess over $20,550
Over $83,550 but not over $178,150 $9,615 plus 22% of the excess over $83,550
Over $178,150 but not over $340,100 $30,427 plus 24% of the excess over $178,150
Over $340,100 but not over $431,900 $69,295 plus 32% of the excess over $340,100
Over $431,900 but not over $647,850 $98,671 plus 35% of the excess over $431,900
Over $647,850 $174,253.50 plus 37% of the excess over $647,850
Unmarried Individuals (other than Surviving Spouses and Heads of Households)
If Taxable Income Is:: The Tax Is:
Not over $10,275 10% of the taxable income
Over $10,275 but not over $41,775 $1,027.50 plus 12% of the excess over $10,275
Over $41,775 but not over $89,075 $4,807.50 plus 22% of the excess over $41,775
Over $89,075 but not over $170,050 $15,213.50 plus 24% of the excess over $89,075
Over $170,050 but not over $215,950 $34,647.50 plus 32% of the excess over $170,050
Over $215,950 but not over $539,900 $49,335.50 plus 35% of the excess over $215,950
Over $539,900 $162,718 plus 37% of the excess over $539,900
Married Individuals Filing Separate Returns
If Taxable Income Is: The Tax Is:
Not over $10,275 10% of the taxable income
Over $10,275 but not over $41,775 $1,027.50 plus 12% of the excess over $10,275
Over $41,775 but not over $89,075 $4,807.50 plus 22% of the excess over $41,775
Over $89,075 but not over $170,050 $15,213.50 plus 24% of the excess over $89,075
Over $170,050 but not over $215,950 $34,647.50 plus 32% of the excess over $170,050
Over $215,950 but not over $323,925 $49,335.50 plus 35% of the excess over $215,950
Over $323,925 $87,126.75 plus 37% of the excess over $323,925
Heads of Households
If Taxable Income Is: The Tax Is:
Not over $14,650 10% of the taxable income
Over $14,650 but not over $55,900 $1,465 plus 12% of the excess over $14,650
Over $55,900 but not over $89,050 $6,415 plus 22% of the excess over $55,900
Over $89,050 but not over $170,050 $13,708 plus 24% of the excess over $89,050
Over $170,050 but not over $215,950 $33,148 plus 32% of the excess over $170,050
Over $215,950 but not over $539,900 $47,836 plus 35% of the excess over $215,950
Over $539,900 $161,218.50 plus 37% of the excess over $539,900
Estates and Trusts
If Taxable Income Is: The Tax Is:
Not over $2,750 10% of the taxable income
Over $2,750 but not over $9,850 $275 plus 24% of the excess over $2,750
Over $9,850 but not over $13,450 $1,979 plus 35% of the excess over $9,850
Over $13,450 $3,239 plus 37% of the excess over $13,450

 

 

 

 

For more information, please contact us.

Related Reading:

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Eric-Strawder.gifEric Strawder is a Tax Manager at the National Tax Office at CBIZ. He can be reached at 816.945,5500 or EStrawder@cbiz.com

 

 


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Tags: estate planning, Taxes, Indivdual Taxes, Employee Retention Credits, Stimulus, Biden, Joe Biden, AMT, child tax credit, Kiddie Tax

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