Last week’s blog covered some of the 2022 tax changes that may cause your tax situation to be quite different than it was in 2021. Here are some additional changes that may impact your return for the next filing season.
Standard Mileage Rates
|Standard mileage rate for business driving/mile||56¢||58.5¢|
|Medical travel and military/mile||16¢||18¢|
|Charitable driving/mile (fixed by law)||14¢||14¢|
Payroll Taxes in 2022
- Social Security annual wage base: $147,000
- Social Security tax rate on employers and employees remains at 6.2%
- Workers and employers continue to pay 1.45% Medicare tax on all compensation in 2022
- Workers pay the 0.9% Medicare surtax on 2022 wages and self-employment income (over $200,000 for singles and $250,000 for couples)
- The nanny tax threshold: $2,400
Health Savings Accounts (HSAs)
The annual cap on deductible contributions to health savings accounts (HSAs):
- Increases from $3,600 to $3,650 for self-only coverage
- Increases from $7,200 to $7,300 for family coverage
- People born before 1968 can add $1,000 (unchanged from 2021)
Qualifying insurance policies are required to limit out-of-pocket costs in 2022:
- $14,100 for family health plans, up from $14,000 in 2021
- $7,050 for people with individual coverage, up from $7,000 in 2021
- The minimum policy deductibles remain unchanged at $2,800 for families and $1,400 for individuals
Flexible Spending Accounts (FSAs)
The limit on an employee’s contributions to a healthcare flexible spending account (FSA) is $2,850 in 2022, an increase of $100. The maximum carryover of unused amounts increased by $120 to $570.
However, workers are not able to contribute as much to a dependent care FSA in 2022. Due to the impact of the pandemic in 2021, a family could save up to $10,500 in a dependent care flexible spending account without paying tax on the contributions. In 2022, the annual limit on tax-free contributions goes back to $5,000.
Alternative Minimum Tax
Good news for taxpayers worried about alternative minimum tax (AMT) is that exemptions increased for 2022:
- $114,600 (2021) to $118,100 for couples
- $73,600 (2021) to $75,900 for single filers and heads of household
The phaseout zones for the exemptions also start at higher income levels:
- $1,047,200 (2021) to $1,079,800 for couples
- $523,600 (2021) to $539,900 for singles and household heads
The 28% AMT tax rate kicks in above $206,100 of alternative minimum taxable income (AMTI), compared with AMTI over $199,900 in 2021.
Congress continues to extend a group of tax breaks that are constantly scheduled to expire, collectively known as tax extenders. So far, Congress hasn’t passed legislation to renew the relevant deductions and credits that expired at the end of 2021. In the past, lawmakers have extended some or all of these tax breaks, so we will need to wait and see which get extended into 2022.
If you’re self-employed, it’s worth taking notes of the following tax law changes that could impact your bottom line in 2022.
- Self-employed people (as well as owners of LLCs, S corporations and other pass-through entities) can still deduct 20% of their qualified business income
- This is subject to limitations for individuals with taxable incomes in excess of $340,100 for joint filers, and $170,050 for others
- Pandemic-related tax credits for self-employed people have expired
Estate & Gift Taxes
The lifetime estate and gift tax exemption increases from $11.7 million in 2021 to $12.06 million in 2022 (a possible $24.12 million for couples) and $12.92 in 2023.
In real estate, the special estate tax valuation of real estate increases in 2022. With regards to the estate of a person who passes in 2022, up to $1.23 million of farm or business real estate (up from $1.19 million in 2021) can receive a discount valuation. The estate can value the property at its current use, instead of fair market value.
Another change comes to the installment payment tax breaks on estate tax liability. As much as $656,000 of tax can be deferred if one or more closely held businesses make up greater than 35% of an estate in 2022. The IRS will only charge only 2% interest.
The annual gift tax exclusion also rises from $15,000 to $16,000 per recipient in 2022 ($17,000 in 2023). This means you can give up to $16,000 ($32,000 as a couple) to any person in 2022 without having to file a gift tax return or impact your lifetime estate and gift tax exemption.
Note that the current estate tax rates are set to sunset on January 1, 2026. If there are no legislative changes, the exemption will revert back to $5 million in 2026. Contact us if you have concerns about this potential change; we can help you understand the impact on your overall financial picture.
It’s never too early for tax planning
The more time left in the year, the better equipped you will be to make proactive moves that impact your tax return. Contact us to learn more about 2022 tax changes, tax planning, estate planning, and other financially savvy moves.