Key facts and figures to help you plan for the new year.
Increased Retirement Plan Contribution Limits
The IRS announced that the 2022 contribution limit for 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will increase to $20,500.
Individuals aged 50 or over at the end of the tax year can make an additional catch-up contribution of $6,500, making the total contribution limit $27,000.
IRA & Roth IRA Contribution Limits Remain Unchanged
IRA contribution limits remain unchanged for 2022. Taxpayers can contribute $6,000 to their Traditional or Roth IRA. Individuals aged 50 and over can make an additional catch-up contribution of $1,000, making their total contribution $7,000.
Increased Limits for Traditional IRA Deductibility
IRA contributions are only deductible for taxpayers who have income under certain thresholds. IRA deductibility is also dependent on filing status whether a taxpayer, or spouse, is covered by a retirement plan at work.
The income phase-out range for couples Married Filing Jointly is $109,000 to $129,000. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan. Meaning, if your income is below $109,000 you can take the full deduction.
Here is the full table of limits for taxpayers who are covered by a retirement plan at work.
Here is the full table for taxpayers, and spouses, who are not covered by a retirement plan at work.
Increased Income Limits for Roth Contributions
Direct contributions to Roth IRAs can only be made for taxpayers under a certain income threshold. For 2022, if you are Married Filing Jointly and your modified AGI is less than $204,000 you can contribute up to the $6,000 limit ($7,000 for those 50+).
The full table of limits can be found here.
Increased SIMPLE IRA Contribution Limit
The limit for individuals to contribute to their SIMPLE retirement accounts is $14,000 for 2022. The catch-up for ages 50 and up is $3,000, meaning you can contribute up to $17,000 for 2022 if you are 50 or older.
Increased SEP IRA Contribution Limit.
For a self-employed individual, SEP IRA contributions are limited to 25% of net earnings, up to $61,000, for 2022.
Increased Health Savings Account Contribution Limits
An individual with coverage under a qualifying high-deductible health plan can contribute $3,650 for the year to their HSA. Their deductible cannot be less than $1,400.
An individual with family coverage can contribute up to $7,300 for the year. Their deductible cannot be less than $2,800.
Individuals who have an HSA and are over age 55 can make a catch-up contribution of $1,000.
Social Security Benefits Increase
Social Security and Supplemental Social Security (SSI) benefits will increase 5.9% for 2022.
Social Security Wage Base Increase
Those who pay into Social Security will be taxed 6.2% on earnings up to $147,000 in income next year.
Medicare Part B Premium Increase
Medicare Part B Premiums will increase from a base amount of $148.50 to $170.10.
If your modified adjusted gross income as reported on your tax return from 2 years ago is above a certain amount, you’ll pay the standard premium plus an Income Related Monthly Adjustment Amount (IRMMA).
For taxpayers Married Filing Jointly the additional amount kicks in for those with incomes above $182,000. The full table can be found here.
Federal Student Loan Payments Will Resume
Payments and accumulating interest on Federal Student Loans have been suspended since March 2020 due to the pandemic. The Covid 19 emergency relief for federal student loans ends January 31st and payments will resume February 1st.
Gift Tax Annual Exclusion Increase
The IRS allows taxpayers to gift a certain amount each year to other individuals without having to file a gift tax return or deduct from their lifetime exclusion amount. For 2022, the gift tax annual exclusion amount is $16,000 for individuals and $32,000 for married couples.
Standard Deduction Increase
The standard deduction gets a boost for the 2022 tax year. The standard deduction for couples Married Filing Jointly will rise to $25,900. For Single filers and Married Filing Separately, the standard deduction will rise to $12,950. For those filing as Head of Household, the standard deduction will be $19,400.
Still Unknown
The Build Back Better Act passed in the House at the end of November and is now in the hands of the Senate, where it will likely be revised again. On the table are several tax-related items including: the Child Tax Credit, a surtax on those making over $10 million a year, and an increase in the state and local tax (SALT) deduction cap from $10,000 to $80,000.
Another hot topic going into the new year will be the potential for rising rates in 2022. In the Fed’s November meeting they opted to keep the Federal Funds rate at target of 0.00%-0.25% for the time being, but officials expressed concern about inflation, and said they would be willing to raise interest rates if prices keep rising.
While we can plan for what we know is coming, there are still many unknowns that may affect the bottom line for many Americans next year. As always, we’ll stay abreast of any changes as they occur and keep you informed as they relate to your personal, financial plan.