There are a number of tax changes for the 2022 tax year. Many of these changes are due to normal bumps for inflation. In late 2021 the IRS announced annual inflation adjustments for more than 60 tax provisions for 2022. Here are some important tax changes that are in effect for the 2022 tax year.
Tax bracket increases
There are no changes in the marginal tax rates for 2022 from the 2021 levels. They range from 10% to 37% on the top end. However, the upper limits of most brackets increased for 2022. Here are some examples:
- For single filers, the top end of the 22% tax bracket increased to $89,075 from $86,375 in 2021.
- For those filing married and joint, the top end of the 32% tax bracket increased to $431,900 from $418,850.
- For single filers the 37% bracket increased to incomes over $539,900 from incomes over $523,600 in 2021.
- For those filing married and joint, the top end of the 37% bracket includes incomes over $647,850 up from $628,300.
What this means is that within all of the tax brackets, there is extra room for 2022 versus 2021 before taxpayers move into the next marginal tax bracket, saving them money over the same level of income for 2021.
Capital gains tax rates increase
For 2022, the top end of the various capital gains tax brackets has all increased a bit over those in 2021. The capital gains tax rates remain at 0%, 15% and 20%.
Meaghan McKenzie Managing Director, Investments at Wedbush Securities Seattle office says, “We have had a bear market this year and with all markets there is always a silver lining. With bull markets people like capital appreciation but there is always a discussion of capital gains issues. In bear markets you have capital depreciation and sometimes that opens the door for tax planning opportunities. Whether or not this applies to you, talk to your advisor now to get personalized advice for your circumstance.”
Employer-Sponsored Retirement Contribution Limits Increase
Contribution limits for 401(k) contributions have been increased to $20,500 for 2022 from $19,500 in 2021. For those who are 50 or over at any point during the year, they can contribute an extra $6,500 in catch-up contributions which is unchanged for 2022.
Traditional IRA Income Restrictions to Deduct Contributions Increase
For those who are covered by a 401(k) or other type of retirement plan at work, there are income restrictions that limit that amount they can contribute to a traditional IRA on a pre-tax basis. Income is based on modified adjusted gross income (MAGI) which is adjusted gross income plus certain deductions and excluded income items.
| Filing status | 2021 MAGI | 2022 MAGI | Deduction Limits |
| Single or head of household | $66,000 or less | $68.000 or less | Full deduction up to contribution limit |
| More than $66,000, but less than $76,000 | More than $68,000, but less than $78,000 | Partial deduction | |
| $76,000 or more | $78,000 or more | No deduction | |
| Married filing jointly | $105,000 or less | $109.000 or less | Full deduction up to contribution limit |
| More than $105,000, but less than $125,000 | More than $109,000, but less than $129,000 | Partial deduction | |
| $125,000 or more | $129,000 or more | No deduction | |
| Married filing separately | Less than $10,00 | Less than $10,00 | Partial deduction |
| $10,000 or more | $10,000 or more | No deduction |
Income Limits to Contribute to a Roth IRA Increase
| Filing status | 2021 MAGI | 2022 MAGI | Contribution Limits |
| Single or head of household | $125,000 or less | $129,000 or less | No contribution limit |
| More than $125,000, but less than $140,000 | More than $129,000, but less than $144,000 | Contribution limit phase-out | |
| $140,000 or more | $144,000 or more | No contributions allowed | |
| Married filing jointly | $198,000 or less | $204.000 or less | Full deduction up to contribution limit |
| More than $198,000, but less than $208,000 | More than $204,000, but less than $214,000 | Partial deduction | |
| $208,000 or more | $214,000 or more | No deduction | |
| Married filing separately | Less than $10,00 | Less than $10,00 | Partial deduction |
| $10,000 or more | $10,000 or more | No deduction |
Standard Deduction Increases for All Filing Statuses
The standard deduction is a deduction open to all taxpayers who are not able to itemize deductions on their return. For 2022, the amount of the standard deduction has increased across all filing statuses.
| Filing status | 2021 standard deduction | 2022 standard deduction |
| Single, married filing separately | $12,550 | $12,950 |
| Married filing jointly | $25,100 | $25,900 |
| Head of household | $18,800 | $19,400 |
This increase allows those taxpayers who are unable to itemize to take a slightly higher deduction from their income at tax time.
HSA contribution limits increase
Contribution limits for HSAs (health savings accounts) have increased for the 2022 tax year. HSAs are medical savings accounts that can also serve as an additional retirement account in that the money contributed can be carried over to subsequent years if not used. Contributions are made on a pre-tax basis, withdrawals for qualified medical expenses are made tax-free. This can include Medicare premiums in retirement among a host of others.
HSA contribution limits:
| 2021 contribution limits | 2022 contribution limits | |
| Single | $3,600 | $3,650 |
| Family | $7,200 | $7,300 |
| Catch-up for 55 and over | $1,000 | $1,000 |
Estate and gift tax rates increase
As outlined in the Tax Cuts and Jobs Act legislation, the lifetime estate and gift tax rates have increased for 2022. This allows individuals to transfer more of their estate to their heirs during their lifetimes and at their death without incurring estate taxes.
The lifetime estate tax rates are set to revert back to $5 million after the end of 2025. For 2022 the lifetime exemption stands at just over $12 million per person and will increase through 2025.
Consult your Wedbush financial advisor and your tax professional for help with incorporating tax planning into your overall financial and investment planning. While taxes should not drive your financial planning decisions, they are nonetheless an important consideration.
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Disclosure
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.