Important Tax Numbers for 2022

Even in years when there’s no sweeping legislation from Congress that affects tax rates and other tax rules, it’s important to realize that the IRS typically makes annual tax inflation adjustments. These changes can affect many areas of tax planning and your overall finances, ranging from your retirement account contributions to your decision on whether to itemize deductions.

Knowing what some of these inflation adjustments are for tax year 2022 can help you make more informed choices this year, rather than finding out during next year’s filing season that you missed out on some opportunities.

So, in this article, we’ll cover some of the most important tax numbers to know for 2022. But keep in mind that there may be additional changes that have more impact on your specific tax situation. Consider talking with your tax professional or financial advisor if you have concerns.

Retirement Contributions

For those with workplace retirement plans like 401(k)s, the good news is that contribution limits have increased by $1,000. Now you can contribute up to $20,500 annually to 401(k)s and similar employer-sponsored plans, like 403(b)s.

However, for individual retirement accounts (IRAs)—both traditional and Roth IRAs—the contribution limits are still $6,000 per taxpayer per year. Yet the income limits for contributing to a Roth IRA have increased, so it’s possible that you can take advantage of these retirement accounts in 2022, even if you weren’t eligible last year. 

For tax year 2022, the Roth IRA income phaseout limits start at $129,000 for individuals (up from $125,000) and end at $144,000 (up from $140,000). For married couples filing jointly, these limits start at $204,000 (up from $198,000) and fully phase out at $214,000 (up from $208,000).

Standard Deduction

Another important change is that the standard deduction has gone up for tax year 2022 to $12,950 for individuals, $19,400 for heads of households, and $25,900 for married couples filing jointly. These are increases of $400, $600, and $800 respectively.

So, depending on factors such as how much you paid in mortgage interest, property taxes, and charitable contributions, you may find that this increase means you’d be better off taking the standard deduction. If that’s the case, then your taxes could be simplified.

Income Tax Brackets

While the marginal tax rates remain the same in terms of the percentages paid for each bracket, the affected incomes within those brackets have moved up.

For example, the top tax rate of 37% for tax year 2022 now applies to incomes above $539,900 for individuals and $647,850 for married couples filing jointly. In comparison, for tax year 2021, this top rate applied to incomes above $523,600 for individuals and $628,300 for married couples filing jointly.

Income limits within other tax brackets have also shifted upward, though at different amounts. For example, for tax year 2022, the next tax bracket of 35% applies to incomes over $215,950 for individuals and $431,900 for married couples filing jointly. Last year, for tax year 2021, the 35% rate applied to incomes over $209,425 for individuals and $418,850 for married couples filing jointly.

What this all means is if your income stays the same between 2021 and 2022, you’d effectively be taxed at a lower blended rate this year. And even if your income goes up, the inflation adjustments could mean that your tax rates don’t go up that much. 

For a full list of the tax brackets for 2022, please see the IRS announcement on this issue.

Estate Planning

Tax inflation adjustments could also affect your estate planning in 2022. For one, the annual gift exclusion increased from $15,000 to $16,000. So, for example, a married couple could gift $64,000 to their child and that child’s spouse in 2022 without triggering tax consequences. 

As far as taxes on overall estates, the estate and gift tax exemption has gone up for tax year 2022 to $12.06 million for individuals (up from $11.7 million) and $24.12 million for married couples (up from $23.4 million).

How Will Tax Changes Affect You?

These are just a few of the many tax inflation adjustments that the IRS has made for 2022. Some changes are relatively small, like the monthly commuter benefit increasing from $270 to $280. However, these small changes can still add up to save you money on taxes and perhaps influence some of your decisions, like taking mass transit to work. Or perhaps you’ll decide to make larger changes, like maxing out your retirement contributions.

Speaking with a financial advisor can help you understand which tax changes could affect you, and you can formulate a plan together that helps you leverage these changes to your advantage.

If you want personalized tax and wealth management advice, our fiduciary, fee-only financial planning firm in Roseville and Folsom, CA, provides support to navigate these types of changes.

Schedule a complimentary 15-minute call today to discuss your situation with a financial advisor.

This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.

Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.