The standard deduction is up, Social Security is way up, and other inflation-related changes you should know about
Inflation has been one of the biggest economic stories of 2021 – mostly with scary implications, but there are some positives associated with it as well. The IRS has made changes for 2022 in response to inflation, and many of them have positive ramifications for taxpayers. Here's a summary of the changes that are most likely to affect you:
- The income ranges for each tax bracket have been adjusted upward, meaning more of your income will be taxed at lower rates for 2022. For example, in 2021, the first $19,900 of income for a married couple will be taxed at the lowest rate of 10%. For 2022, that amount rises to $20,550.
- The standard deduction for married couples filing jointly for tax year 2022 rises to $25,900, up $800 from 2021. For single taxpayers and married individuals filing separately, the standard deduction will be $12,950 for 2022, an increase of $400.
- The employee contribution limit for 401(k) and 403(b) plans is increasing to $20,500 in 2022, up from $19,500 last year, although catch-up deposits for those 50 and older will still be $6,500. The IRA contribution limit for 2022 remains at $6,000, where it’s been since 2019, although the income level at which contributions are at least partially deductible rose to $129,000 for couples ($78,000 for singles).
- The limit for employee contributions to health savings accounts (HSAs) increases to $2,850 in 2022, an increase of $100.
- The basic estate tax exclusion amount rises to $12.06 million, up from $11.7 million in 2021.
- The annual gift tax exclusion will rise to $16,000 per recipient for 2022 after four years of remaining at $15,000.
- The kiddie tax threshold increases from $2,200 to $2,300 for 2022, meaning that minors with unearned income over that level will be taxed at their parents’ tax rate.
- For retirees, the Cost of Living Adjustment (COLA) for Social Security and Supplemental Security Income (SSI) benefits is 5.9% beginning with the December 2021 benefits, which are payable in January 2022. That’s the largest such adjustment since 1983.
There are other revised tax rates pegged to inflation that might also have an effect on your planning. Talk with The Popovich Financial Group if you have any questions on how to plan for 2022 amidst these changes, or any personal life changes you anticipate that could affect your tax filing.
Baird does not provide tax or legal advice. Please consult your legal or tax professional for specific information.
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