While annual inflation adjustments to certain provisions of the tax code are routine, there is nothing routine about the current tax landscape.
On November 10, the IRS announced inflation adjustments for 2022 pertaining to a variety of items that may impact your 2022 income tax returns.
As a result of the increasingly inflationary pressure experienced in 2021, the adjustments are slightly more substantial than in recent years. In addition to increases to the standard deduction (benefiting those who do not itemize), 2022 income tax bracket thresholds are also increasing. For tax year 2022, the current top individual income tax rate of 37 percent will apply to income exceeding $647,850 for married couples and $539,900 for single taxpayers. These thresholds are increased from $628,300 for married couples and $523,600 for single filers for 2021.
The IRS makes these inflation adjustments annually for many tax provisions and bases them on the average inflation for the 12-month period ending in August. Thus, these figures are not directly related to the inflation data that the Labor Department also recently released, which shows that inflation is currently affecting all sectors of the economy. As such, barring significant slowing in inflation or deflation between now and August 2023, we can expect further robust adjustments next year.
Below we highlight the changes to the most popular limits. While most had a nominal increase, the dependent care FSA limit returns to its usual $5,000, after a one-year-only increase in 2021.
Cafeteria Plan Contribution Limits
|
|
2021 |
2022 |
|
Health FSA |
$2,750 |
$2,850 |
|
Dependent Care FSA |
$10,500 |
$5,000 |
|
HSA (single) |
$3,600 |
$3,650 |
|
HSA (family) |
$7,200 |
$7,300 |
|
HSA Age 55-plus (additional) |
$1,000 |
$1,000 |
Certain retirement plan contribution amounts have changed as well, while some remain the same.
Select Retirement Plan Contribution Limits
401(k), 403(k), most 457 plans, Thrift Savings Plan
|
|
2021 |
2022 |
|
All taxpayers |
$19,500 |
$20,500 |
|
Age 50-plus (additional) |
$6,500 |
$6,500 |
SIMPLE IRA
|
|
2021 |
2022 |
|
All taxpayers |
$13,500 |
$14,000 |
|
Age 50-plus (additional) |
$3,000 |
$3,000 |
Traditional/Roth IRA
|
|
2021 |
2022 |
|
All taxpayers |
$6,000 |
$6,000 |
|
Age 50-plus (additional) |
$1,000 |
$1,000 |
The IRS also released inflation adjustments for estate and gift tax exclusions.
Estate Tax Exclusion and Gift Tax Limitation
|
|
2021 |
2022 |
|
Lifetime exemption |
$11,700,000 |
$12,060,000 |
|
Total marital lifetime exemption |
$23,4000,000 |
$24,120,000 |
|
Annual gift tax exclusion |
$15,000 |
$16,000 |
|
Annual exclusion for gifts to noncitizen spouse |
$159,000 |
$164,000 |
TAG’s Perspective
While annual inflation adjustments to certain provisions of the tax code are routine, there is nothing routine about the current tax landscape. Presently, capital gains tax rates remain the same for 2022, although the brackets for the rates will slightly change. Additionally, these changes do not include any changes from the proposed Build Back Better bills, including increased tax rates, increased capital gain tax rates, income tax surcharges, increased state and local tax deductions, among others discussed herein. While the infrastructure bill has been signed by the president, much is still unknown about the ultimate fate of the proposed budget reconciliation bill, which in final form, may affect certain tax rates and thresholds mentioned in this Alert. As we have said before: Should you panic? No. Predict? Maybe. Plan? Absolutely. It is important to stay informed, stay engaged, stay agile and stay in touch with us as legislation advances and beyond. Individuals, estates, trusts and businesses should model new provisions and related inflation adjustments, and those likely to be enacted as part of final legislation, to better understand the potential tax implications and to discuss tax planning strategies with experienced tax advisers.
For More Information
If you would like more information about this topic or your own unique situation, please contact John I. Frederick, Steven M. Packer, any of the practitioners in the Tax Accounting Group, trust and estate attorneys David S. Kovsky and Erin E. McQuiggan of the firm’s Private Client Services Practice Group or the practitioner in the firm with whom you are regularly in contact. For information about other pertinent tax topics, please visit our publications page.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.