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11 Tax Changes for 2022

It’s been a few years since the last big piece of tax legislation, the Tax Cuts and Jobs Act, went into effect. When the pandemic hit, Congress acted quickly to provide financial relief through various tax-related measures, many of which have now expired.

While there are no sweeping federal tax changes taking effect in 2022, there are several updates that affect individual filers, including:

  • Adjusted federal income tax brackets
  • Larger standard deduction amounts
  • Adjusted long-term capital gains income thresholds
  • Higher annual retirement contribution limits
  • Adjusted Roth IRA income limits
  • Larger Alternative Minimum Tax exemptions
  • Higher Earned Income Tax Credit amounts
  • Cost-of-living adjustments for Social Security benefits
  • Expiration of new Child Tax Credit rules
  • Expiration of new charitable contribution deduction for non-itemizers
  • New reporting rules for mobile payment apps

Tax Rates and Tax Brackets

Federal tax rates will remain the same for 2022, but the income thresholds have been adjusted for cost of living.

2022 Federal Income Tax Rates

(For taxes due in April 2023)

Tax Rate Single Married Filing Jointly Head of Household Married Filing Separately
10% $0 to $10,275 $0 to $20,550 $0 to $14,650 $0 to $10,275
12% $10,276 to $41,775 $20,551 to $83,550 $14,651 to $55,900 $10,276 to 41,775
22% $41,776 to $89,075 $83,551 to $178,150 $55,901 to $89,050 $41,776 to $89,075
24% $89,076 to $170,050 $178,151 to $340,100 $89,051 to $170,050 $89,076 to $170,050
32% $170,051 to $215,950 $340,101 to $431,900 $170,051 to $215,950 $170,051 to $215,950
35% $215,951 to $539,900 $431,901 to $647,850 $215,951 to $539,900 $215,951 to $323,925
37% $539,901 or more $647,851 or more $539,901 or more $323,926 or more

2021 Federal Income Tax Rates

(For taxes due in April 2022)

Tax Rate Single Married Filing Jointly Head of Household Married Filing Separately
10% $0 to $9,950 $0 to $19,900 $0 to $14,200 $0 to $9,950
12% $9,951 to $40,525 $19,901 to $81,050 $14,201 to $54,200 $9,951 to $40,525
22% $40,526 to $86,375 $81,051 to $172,750 $54,201 to $86,350 $40,526 to $86,375
24% $86,376 to $164,925 $172,751 to $329,850 $86,351 to $164,900 $86,376 to $164,925
32% $164,926 to $209,425 $329,851 to $418,850 $164,901 to $209,400 $164,926 to $209,425
35% $209,426 to $523,600 $418,851 to $628,300 $209,401 to $523,600 $209,426 to $314,150
37% $523,601 or more $628,301 or more $523,601 or more $314,151 or more

Read More: Guide to Filing Your Taxes in 2022

Standard Deduction Amounts

The standard deduction amounts for each filing status have increased for the 2022 tax year. These amounts are adjusted annually to keep up with inflation.

When filing your tax return, you can claim the standard deduction or choose to itemize your deductions.

Filing Status Tax Year 2022 Tax Year 2021
Single or married filing separately $12,950 $12,550
Married filing jointly $25,900 $25,100
Head of household $19,400 $18,800

Capital Gains Tax Thresholds

The long-term capital gains tax rates remain the same for 2022, but the income thresholds have been adjusted for inflation.

Tax Rate Single Married Filing Jointly Head of Household Married Filing Separately
0% $0 to $41,675 $0 to $83,350 $0 to $55,800 $0 to $41,675
15% $41,676 to $459,750 $83,351 to $517,200 $55,801 to $488,500 $41,676 to $258,600
20% $459,751 or more $517,201 or more $488,501 or more $258,601 or more

Read More: How to Avoid Capital Gains Tax

Retirement Contribution Limits

The amount you can contribute to your tax-advantaged retirement accounts annually is determined by federal limits. These are usually adjusted every two to three years for inflation. The biggest change for 2022 is that individuals saving in a 401k are able to contribute an additional $1,000.

Retirement Account Type Max. Contribution Limit for Tax Year 2022
401k $20,500
401k catch-up $6,500
Roth and Traditional IRAs combined $6,000
IRA catch-up $1,000
SIMPLE 401ks and IRAs $14,000
SIMPLE catch-up $3,000

Read More: How to Reduce Taxable Income

Roth IRA Income Limits

To make the full $6,000 Roth IRA contribution for 2022, you need to meet a certain income threshold as established by the IRS. If your modified adjusted gross income (MAGI) is over that amount, you may be able to make a smaller contribution for the year.

Filing Status MAGI Needed for Full Contribution MAGI Needed for Reduced Contribution No Contribution Allowed
Single, head of household, and married filing separately (not living together) Less than $129,000 $129,000 to $143,999 $144,000 or more
Married filing jointly Less than $204,000 $204,000 to $213,999 $214,000 or more

Read More: Can I Contribute to a 401k and an IRA?

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) is an alternative method for calculating income tax. It exists so that high earners can’t wipe out their tax liability with deductions and tax-free income. If their AMT is higher than their regular income tax, they must pay the difference.

Each year, the IRS allows taxpayers who are subject to AMT to claim an exemption amount similar to a standard deduction. These amounts are adjusted annually for inflation.

Filing Status Exemption Amount for Tax Year 2022
Single $75,900
Married filing jointly $118,100

Note that these exemption amounts begin to phase out at $539,900 for single filers and $1,079,800 for married couples filing jointly.

Earned Income Tax Credit

Thanks to inflation adjustments, the Earned Income Tax Credit (EITC) has new income limits and maximum credit amounts for 2022.

The American Rescue Plan Act temporarily boosted the amount of the EITC that people with a qualifying income and no children could receive in 2021, but that measure has expired. Another measure that allowed taxpayers to use their 2019 income to qualify for the credit in 2020 and 2021 has also expired.

Dependents Max. AGI (Single or Head of Household) Max. AGI (Married Filing Jointly) Max. Credit Amount for Tax Year 2022
0 $16,480 $22,610 $560
1 $43,492 $49,622 $3,733
2 $49,399 $55,529 $6,164
3 or more $53,057 $59,187 $6,935

Social Security

The federal government sets an annual limit for the amount of a worker’s wages that are subject to the Social Security tax. In 2022, the limit is $147,000, up from $142,800 the previous year.

Social Security and Supplemental Security Income (SSI) recipients get a cost-of-living adjustment of 5.9% for 2022. That brings the maximum Social Security benefit for retirees to $3,345 a month.

Child Tax Credit Reverts to Old Rules

The new Child Tax Credit was implemented through President Biden’s American Rescue Plan Act last year. An extension for the 2022 tax year was thwarted in Congress in December, but some version of the new credit could still be approved this spring.

The Child Tax Credit is normally claimed on annual tax returns and is only partially refundable. Last year’s temporary expansion of the credit made it fully refundable and loosened the eligibility rules. It also increased the total value of the credit and made up to half available as advance payments.

If you received any monthly Child Tax Credit payments between July and December 2021, you should have received Letter 6419 from the IRS showing you how much you got. Use that letter to fill out your tax return — due by April 18 — and claim any remaining credit you’re entitled to. The credit will be applied to your tax bill; if you don’t owe anything, it will be issued as a refund.

Charitable Contribution Deductions

A measure approved by the CARES Act in 2020 allowed taxpayers to claim up to $300 — or $600 if married and filing jointly — in charitable donations as deductions on their tax return without itemizing for tax years 2020 and 2021. The measure is now expired.

For those who do itemize their deductions, the CARES Act also removed the limit on what portion of cash contributions that can be claimed for 2021. The limits typically range from 20% to 60% of adjusted gross income (AGI). For the 2021 tax year — the taxes you file this spring — the limit is 100% of AGI.

New 1099-K Reporting Rule for Payment Apps

If you run a business that accepts payments via PayPal, Venmo, Square, Lyft, Uber or another “payment settlement entity,” the IRS wants to know about that income.

A new law says that these platforms have to send transaction records to the IRS for any user who collects more than $600 in “goods and services” payments in 2022. The user will also get a copy of the record — IRS Form 1099-K — to help them complete their return in 2023.

Previously, the IRS only required payment apps to submit the form for users who received more than $20,000 in payments for goods and services and had at least 200 transactions — a high bar to clear for side hustlers and gig workers. The IRS is aiming to increase voluntary tax compliance with the new lower threshold.

Inflation

It’s clear that inflation plays a big role in the tax system. The Consumer Price Index rose 7% in the 12 months ending December 2021. That’s the largest increase since June 1982. It remains to be seen how this substantial change in the cost of goods and services will impact future tax legislation.

Read More: Here’s How Inflation is Impacting Financial Confidence in America

Next Steps for You

  1. File your 2021 taxes: Tax season is in full swing. You should have all the documents you need to prepare your 2021 tax return by mid-February.
  2. Track your refund: If you’re owed a tax refund, the fastest way to get it is by filing electronically and choosing direct deposit. Despite pandemic-related challenges, the IRS says it still expects most tax filers who use this method to get their refund within 21 days of submitting their return. Filing a paper return, opting for a paper check over direct deposit, claiming the EITC, or filing an inaccurate return can cause delays.
  3. Consult a tax advisor: No one likes to share their income with Uncle Sam. A financial or tax advisor can help you implement strategies to reduce your tax burden in 2022, whether through optimizing your investment portfolio or finding generous tax credits or deductions you qualify for. Don’t wait until the end of the year to do some tax planning.

Want a better way to manage your personal finances? Millions of people use Personal Capital’s free and secure online financial tools to see all of their accounts in one place, analyze their investments, and plan for long-term goals, like buying a house or saving for retirement.

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Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.
Tanza is a CERTIFIED FINANCIAL PLANNER™ and former resident CFP® for Business Insider. She breaks down personal finance news and writes about taxes, investing, retirement, wealth building, and debt management. Tanza is the author of two ebooks, A Guide to Financial Planners and "The One-Month Plan to Master your Money."
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