With President Biden’s Build Back Better legislation on life support, it’s looking increasingly likely that wealthy taxpayers will avoid a raft of proposed tax increases that were meant to pay for the bill’s ambitious social programs.
But that doesn’t mean nothing is changing on the tax front in 2022. Every year, the IRS adjusts tax brackets, contribution ceilings for workplace retirement plans, and more. Key adjustments for the 2022 tax year include:
Marginal income tax rates. The IRS updates tax-bracket thresholds every year, based on cost-of-living changes. For tax year 2022, the highest rates are:
- 37% for single taxpayers with incomes exceeding $539,900, and $647,850 for married couples filing jointly
- 35% for single taxpayers with incomes exceeding $215,950, and $431,900 for married couples filing jointly
- 32% single taxpayers with incomes exceeding $170,050, and $340,100 for married couples filing jointly
- 24% for single taxpayers with incomes exceeding $89,075, and$178,150 for married couples filing jointly
Capital gains thresholds. For 2022, the top capital gains tax rate of 20% applies to single filers earning over $459,750, and $517,200 for married couples filing jointly. The 15% capital gains rate applies to individuals earning $41,675 to $459,750, and couples earning between $83,350 and $517,200. In addition, a 3.8% tax on net investment income, the “Obamacare tax,” kicks in above $200,000 for single taxpayers and $250,000 for married couples.
IRAs. The limit for annual IRA contributions for 2022 remains unchanged, at $6,000, and the catch-up contribution limit for individuals aged 50 or older remains $1,000. Those numbers are doubled for joint filers. In addition, 401(k) participants with incomes below $78,000 ($129,000 for couples) are eligible to contribute pre-tax dollars to a traditional IRA. And the Roth IRA income limit for 2022 is $144,000 for individuals and $214,000 for couples.
401(k) contribution limits. In 2022, individuals aged 49 or younger can contribute $20,500 to their 401(k) or similar workplace retirement savings plan, up from $19,500 in 2021. Those aged 50 or older can make catch-up contributions to bring the total to $27,000, up $1,000 from 2021.
Standard deduction. The standard deduction reduces taxable income, and is adjusted each year for inflation. For 2022, the deduction is up $800 for married couples filing jointly, to $25,900. For single taxpayers it’s risen $400, to $12,950.
Alternative Minimum Tax. The AMT is meant to ensure that high earners pay at least some income tax, regardless of how many deductions or credits they claim. The law creating the tax didn’t take inflation into account, however, so to keep the tax from impacting middle-class taxpayers, the IRS allows an exemption and adjusts it annually. For tax year 2022, the exemption amount is $75,900 for individuals, and the exemption begins to phase out at $539,900. For joint filers, the exemption is $118,100, and starts to phase out at $1,079,800.
Estate-tax exemption. The amount individuals can inherit in 2022 without paying taxes is $12.06 million; it’s $24.12million for couples. That’s up from $11.7 million and $23.4 million, respectively, in 2021.
Annual gift exclusion. The amount individuals can give away in 2022 without that amount counting against their $12.06 million lifetime exemption is $16,000. That’s up from $15,000 for the calendar year 2021.
Tax changes can be complex. We recommend that you get in touch with your wealth advisor sooner rather than later, to discuss year-end planning strategies.