Money Matters: IRS increases standard deductions for 2022

Urology Times Journal, Vol 50 No 02, Volume 50, Issue 02

"The maximum simplified employee pension plan individual retirement account contribution was increased from $58,000 to $61,000, with maximum countable compensation increased to $305,000," writes Jeff Witz, CFP.

Are there any significant tax changes for 2022?

Congress continues to debate more significant changes to the tax code, but it is unknown when a final bill will make its way to President Biden’s desk. In the meantime, the Internal Revenue Service (IRS) made 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. Heads of household 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 (Table 1).

• Likewise, the capital gains rates remained the same, but the income brackets that determine the rate one pays increased (Table 2).

• 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 catchup contribution for employees aged 50 and older remains at $6500. Total defined contribution limits for employee and employer contributions were increased from $58,000 to $61,000. The IRS compensation limit, on 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 catchup contribution remained at $3000.

• The maximum simplified employee pension plan individual retirement account (IRA) contribution was increased from $58,000 to $61,000, with maximum countable compensation increased to $305,000.

• The annual contribution limit for an IRA, for both pretax or Roth or a combination, remains at $6000 for 2022. The catchup contribution limit remains at $1000. 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 between $68,000 and $78,000. For married couples filing jointly, where the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phaseout range is $109,000 to $129,000 for 2022. For an IRA contributor who is not covered by a workplace retirement plan and 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 phaseout 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 phaseout 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 nondeductible IRA and convert it to a Roth IRA. (The current tax bill being debated in Congress may eliminate the ability to use 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 couples 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 accountant. Beyond typical tax planning, they may offer additional strategies to minimize your tax impact throughout the year.

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Effective June 21, 2005, newly issued Internal Revenue Service regulations require that certain types of written advice include a disclaimer. To the extent the preceding message contains written advice relating to a Federal tax issue, the written advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer, for the purposes of avoiding Federal tax penalties, and was not written to support the promotion or marketing of the transaction or matters discussed herein.

The information contained in this report is for informational purposes only. Any calculations have been made using techniques we consider reliable but are not guaranteed. Please contact your tax advisor to review this information and to consult with them regarding any questions you may have with respect to this communication.