This material highlights a number of key IRS and other planning amounts for 2022. It is designed to be a reference tool for clients and advisors to inform this year’s planning. Individuals should consult their tax and other advisors before taking action on this information.
Estate and Gift Tax
- Annual Gift Exclusion: Increased to $16,000 from $15,000, or $32,000 for married couples who gift split. This amount is $164,000 for a spouse gifting to a non-US citizen spouse.
- Federal Estate and Gift Tax Exemption Amount: Increased to $12,060,000 from $11,700,000 per person. This is a combined $24,120,000 for a married couple. This higher exemption amount is scheduled to sunset on 12/31/2025 to effectively one-half of the inflation-indexed amount. Massachusetts estate exemption remains at $1,000,000.
- Generation Skipping Transfer (GST) Exemption Amount: Also increased to $12,060,000 per person.
Retirement Savings and HSAs
- 401(k) (andsimilar) Plan Contribution Limit: Increased in 2022 by $1,000 to $20,500 for those under age 50, and to $27,000 ($20,500 + $6,500 catch up) for those over age 50.
- Traditional IRA/Roth IRA Contribution Limits: $6,000 for those under age 50, and $7,000 ($6,000+ $1,000 catch up) for those over age 50. Contributions for a given year can be made during that year or until April 15th of the following year, but cannot exceed the limit even if contributions are split between a traditional and Roth IRA. There is no longer an age limit for making IRA contributions, but contributions cannot exceed earned income, including the earned income of a Married Filing Jointly (MFJ) spouse. Backdoor Roth IRA conversions are allowed under current law.
- Roth IRA Contribution Income Limits: In order to make a full direct contribution to a Roth IRA, incomes must be below a certain level, with the ability to make contributions phasing out quickly once that level is reached. The income phase-out ranges are: Single and Head of Household (HOH) – $129,000 to $144,000, MFJ – $204,000 to $214,000, and Married Filing Separately (MFS) – $0 to $10,000.
- Traditional IRA Contribution Income Limits: Contributions to a traditional IRA can be tax deductible or after-tax. If neither a person nor their spouse is covered by a retirement plan at work, then their traditional IRA contribution will be tax deductible. If either a person or their spouse is covered by a retirement plan at work, then their contribution is only fully deductible if their Modified Adjusted Gross Income (MAGI) falls into one the following: Single or HOH – below $68,000 or MFJ – below $109,000. (MAGI is basically Adjusted Gross Income (AGI) with non-taxable items, like muni-bond interest, added back.)
- Required Minimum Distributions (RMDs): Now begin at age 72. Changes to the life expectancy tables have lowered RMD amounts beginning in 2022.
- Inherited IRAs: As a general rule for any IRA inherited where the owner passed after 2019, all assets must be distributed by December 31st of the 10th year following the year of the decedent’s death unless the beneficiary is a member of a special class, such as being a surviving spouse. For those subject to the 10-year distribution, there are no required minimum distributions before the ultimate distribution date, but distributions can be taken during that time if desired.
- Health Savings Account (HSA) Contribution Limits: $3,650 for a person and $7,300 for a family, with an additional $1,000 allowed for those over age 55. The High Deductible Health Plan (HDHP) minimum deductibles are $1,400 for a person and $2,800 for a family, with maximum out-of-pocket costs of $7,050 for a person and $14,100 for a family.
- Federal Standard Deduction Amounts: MFJ – $25,900 (up $800), HOH – $19,400 (up $600), Single and MFS – $12,950 (up $400).
- Top Ordinary Income Tax Rate: Remains at 37% and applies to a HOH or single taxpayer’s ordinary income over $539,900, MFJ ordinary income over $647,850, and trusts and estates ordinary income over $13,450.
- Medicare Surtax: The 0.9% tax applies to wages and self-employment income over the following thresholds: Single and HOH – $200,000, MFJ – $250,000, and MFS – $125,000.
- Long-term Capital Gains (LTCG) Tax Rates: The 15% and 20% LTCG tax rates apply at the following thresholds: Single – $41,676 and $459,751; MFJ – $83,351 and $517,201; HOH – $55,801 and $488,501; Trusts and Estates – $2,801 and $13,701. When LTCG is below the 15% minimum, the tax rate is 0%.
- Net Investment Income Tax (NIIT): The 3.8% NIIT applies when MAGI exceeds a threshold, with the tax calculated on the lesser of net investment income or the amount by which MAGI exceeds the threshold. The thresholds are: MFJ – $250,000, single or HOH – $200,000, and MFS – $125,000. Since proposed legislation has not passed, under current law this does not apply to trade or business income. Note that the NIIT applies to a trust or estate’s undistributed net investment income with a threshold of $13,450.
- Safe Harbor Estimated Tax Percentage: 110% of prior year tax liability for those with AGI over $150,000 and 100% of prior year tax for those with AGI up to $150,000. The Massachusetts safe harbor is 100% of prior year tax.
- Qualified Charitable Distributions (QCDs): Any traditional IRA owner over age 70½ can distribute up to $100,000 per year to qualified charities, which do not include donor-advised funds or private foundations. Amounts distributed count towards any RMD, can exceed the RMD amount, and are not included in ordinary income. To avoid taxation, the IRA owner must be over age 70½ on the date of the QCD. If you make IRA contributions after age 70½, those amounts are the first paid out and do not qualify for QCD treatment.
- Deductions: The 100% of AGI limit for cash charitable gifts and the $300 per person/$600 per married couple above the line charitable contribution deduction that were originally enacted as part of the CARES Act expired on December 31, 2021. Currently, for gifts to non-private foundations (such as public charities and donor-advised funds), an individual can deduct up to 60% of AGI for cash gifts including up to 30% of AGI for gifts of appreciated securities. These limits are 30% and 20%, respectively, for gifts to private foundations. Gifts in excess of the deduction limits can be carried forward for up to 5 years, using what is essentially a Last In, First Out (LIFO) method in future years for carryover calculation purposes.
Social Security & Medicare:
- Social Security Wage Base: For 2022 is $147,000 with a 6.2% tax rate for both employers and employees. The Medicare tax rate of 1.45% applies to all wages for both employers and employees.
- Social Security Full-Retirement Age (FRA): FRAs are based on year of birth as follows:
- Once an individual reaches FRA there is no earnings limit. Waiting to claim until age 70 will result in a higher benefit if claiming on your own record. Regardless of FRA or when Social Security is claimed, Medicare should begin at age 65, or earlier if disabled, unless an individual has other creditable coverage or special circumstances.
- Social Security Benefits COLA Adjustment: Was 5.9% for 2022, the highest adjustment percentage since the early 1980s.
- Medicare Premiums: Are based on MAGI, with an individual’s 2022 Medicare premium based on their 2020 tax return. If someone’s income has materially changed due a “life-changing event,” such as retirement, divorce, or marriage, Form SSA-44 can be filed to request a reconsideration of the Income-Related Monthly Adjustment (IRMA) amount. For 2022, IRMA is relevant for single taxpayers with 2020 MAGI over $91,000 and for MFJ with MAGI over $182,000. Part B premiums escalate from $170.10 per month to as high as $578.30 per month, per person. IRMA also applies to Part D premiums.
If you have any questions about how these items could impact you or what steps you should consider, please reach out to your tax or planning advisor. Your Fiduciary Trust Officer is also available to discuss these concepts with you.
Release date: 1/10/2022
Sources: Internal Revenue Service, Medicare.gov, ssa.gov
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To comply with requirements imposed by the Department of the Treasury, we inform you that any U.S. tax advice contained in this communication is not intended or written by the practitioner to be used, and that it cannot be used by any taxpayer, for the purpose of (i) avoiding penalties that may be imposed on the taxpayer, and (ii) supporting the promotion or marketing of any transactions or matters addressed herein. Our use of a disclaimer does not change the high degree of care and attention that we devote to our communications. Moreover, the inclusion of the disclaimer does not indicate that penalties could be imposed on the subject matters at issue, but rather merely indicates that the advice we have provided you in such communication does not preclude the IRS from asserting any applicable penalties.