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Will taxes change in 2022? By how much? The answers are still up in the air—especially as a final decision on President Biden’s Build Back Better bill looks like it’ll be pushed to the New Year. Here’s a list of tax changes we know are happening and others you’ll want to keep an eye on as you start the year off.

First off, several tax breaks have improved thanks to annual adjustments. The IRS has announced that, for tax year 2022:

  • The standard deduction for married couples filing jointly rises to $25,900, which is up $800 from 2021 (the standard deduction for single taxpayers rises to $12,950). There remains no limit for itemized deductions.
  • The top federal income tax rate remains 37% (for now) and kicks in at $539,900 for single taxpayers and $647,850 for married couples filing jointly.
  • Capital gains tax rates have shifted to no capital gains taxes up to $41,675 (single) and $83,350 (married filing jointly); 15% tax on $41,675 to $459,750 (single) and $83,350 to $517,200 (married filing jointly); and 20% on over $459,750 (single) and over $517,200 (married filing jointly).
  • The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $2,850.
  • The foreign earned income exclusion is $112,000 (up from $108,700).
  • The annual exclusion for gifts increases to $16,000 per individual.
  • The amount individuals can contribute to their 401(k) plans in 2022 has increased to $20,500.

The IRS outlines additional inflation adjustments here. But take those numbers with a grain of salt because they could change further with the passing of the Build Back Better bill and other decisions. We covered some of the proposed changes in our latest Bankler Report. The main reason the bill is taking so long to pass through Congress is the sheer size. It includes provisions affecting individual taxes, retirement accounts, business/corporate taxes, and more. Even members of Biden’s own party are having trouble finding common ground on every point.

Your best option moving forward is to talk to your tax advisor about your individual thresholds and circumstances. You should always be mindful of certain events and how they affect your tax bill including large capital gains or losses, retirement or another life event, big changes with your business, and more. Consider annual adjustments like the ones mentioned above as well.

But then you should also pay attention to potential changes like the ones outlined in the Build Back Better bill. These changes could affect you if:

  • You have children who qualify you for the child tax credit. One of the biggest points of the bill’s contention is a one-year expansion of the child tax credit and a permanent extension on refundability.
  • Your Adjusted Gross Income (AGI) exceeds $5 million (for single filers) or $10 million (for joint filers). It may subject you to a new 3% AGI surtax. It applies to estates or trusts with an AGI of $200,000 or more as well.
  • You actively run a business that realizes taxable interest, dividends, gains, passive rents, annuities, royalties and similar earnings. A proposed expansion of the Net Investment Income (NII) tax will include not only passive businesses but active businesses as well.
  • Your expenses reach the state and local tax (SALT) deduction cap. The bill proposes raising the SALT deduction from $10,000 to $80,000 through 2031.
  • You have a Roth IRA. Elimination of “back-door” Roth conversions has been proposed.
  • You’re considering purchasing electric vehicles. The bill proposes a credit for any qualified commercial electric vehicle placed in service by a taxpayer. Personal electric vehicle credits are also proposed.

We outline more details of the original bill here (but keep in mind that these details will likely change – we’ll publish a new Bankler Report here when the final bill is passed). Once again, it’s essential to be on the same page with your tax advisor moving into the New Year and take advantage of the opportunities you can—like considering donor advised funds (DAFs) and other tools for charitable giving, reviewing your business succession plan, estate plan and retirement savings, and other tax strategies. Feel free to contact us with questions.

 

 

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