Tax planning is a complicated business, but nearly every tax planner and accountant will agree that the sooner an individual or business knows about upcoming changes to the tax code the more likely it is that they will be able to adapt.
While there are several proposed changes to the 2022 tax codes that have not yet been voted into law, there are several changes that we know are coming. Be aware of the following:
The standard deduction for married couples filing jointly for 2022 rises to $25,900. That's up $800 from 2021. For single taxpayers and married individuals filing separately, the standard deduction will increase to $12,950. That is an increase of $400 from 2021. For heads of households, the standard deduction will be $19,400; an increase of $600. The increase in this deduction goes along with the increase in the limits on tax brackets; both measures are designed to keep up with rising inflation.
Related: Standard vs. Itemized Deduction: What Should I Choose?
In the tax year 2022, the top tax rate will remain at 37% for individual single taxpayers with incomes greater than $539,900. Similarly, the rate for married couples filing jointly will be set at $647,850.
The other rates are:
The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).
The new tax brackets were designed to keep up with inflation. While the increases are modest, however, they could have a big impact on families that have received an increase in pay over the past year.
It seems as if Congress makes a change to the AMT every year, and 2022 is no different. This year, the Alternative Minimum Tax exemption amount for individuals is $75,900 and begins to phase out at $539,900. For married couples filing jointly the exemption amount is $118,100 and phase out begins at $1,079,800. For comparison, the 2021 exemption amount was $73,600 with phase out beginning at $523,60. For married couples filing jointly the exemption started at $114,600 and it began to phase out at $1,047,200.
In 2022 the maximum Earned Income Tax Credit amount will be $6,935 for qualifying taxpayers who have three or more qualifying children. That's an increase from $6,728 in 2021. There is also a list of changes for people in other types of tax situations. So far, however, there has not been a renewal of the monthly payouts of the EITC, although the Biden administration claims that it is one of their top priorities.
The monthly limitation for qualified transportation and parking increases to $280.
In 2022, the limitation for employee salary reductions for contributions to health flexible savings plans, or FSAs, increases to $2,850. Plans that allow carryover from year to year now have that carryover amount capped at $570. That's only an increase of $20 from 2021.
Furthermore, participants who have self-only coverage in a Medical Savings Account (also known as a high deductible health care plan), can only have an annual deductible of $2,450 or more. That limit is an increase of $50 from 2021. The deductible is capped at $3,700, an increase of $100 from 2021. The maximum out-of-pocket expense amount for individuals is $4,950, up $150 from 2021.
For family coverage, the annual deductible cannot be less than $4,950, an increase of $150 from 2021; but cannot be more than $7,400,an increase of $250. The out-of-pocket expense limit is $9,050, an increase of $300 from the previous year.
The adjusted gross income or AGI used by married persons filing jointly to determine the reduction in the Lifetime Learning Credit will not be adjusted for inflation beginning after December 31, 2020. The Lifetime Learning Credit will be phased out for taxpayers with individual AGI over $80,000. For joint filers the phase out will start at an AGI of $160,000.
The foreign earned income exclusion will increase to $112,000 up from $108,700 over the previous year. This is another nod to rising inflation.
The estates of persons who die during 2022 will have a basic exclusion amount of $12,060,000. This signifies a rather large increase, since the previous level was set at $11,700,000.
The experts at the MB Group can help guide you through any changes each year, and help you not only deal with them, but plan for them. If you would like more information about tax planning for both individuals and businesses, please contact our team today.