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Major Tax Changes for 2022 You Need To Know

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The old saying that nothing is certain except death and taxes is only partly true. Yes, you can certainly expect to pay taxes in 2022, but you may not see the same kind of tax return thanks to a number of tax law changes.

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Many changes are triggered by inflation, which means the income limits for claiming deductions are increasing.

Read on for an update on the tax changes you need to know about to plan for your financial future.

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Tax Brackets Increase for All Filing Statuses

Your federal taxes are calculated based on the tax brackets for your filing status. Each year, these brackets are adjusted for inflation. Here are the minimum income levels for the top tax brackets for each filing status in 2022:

Single: $539,901 (up from $523,601 in 2021)

Head of Household: $539,901 (up from $523,601 in 2021)

Married Filing Jointly: $647,851 (up from $628,301 in 2021)

Married Filing Separately: $332,926 (up from $314,151 in 2021)

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Employer-Sponsored Retirement Contribution Limits Increase

The contribution limit for elective deferrals to 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan increases to $20,500 for 2022. The total amount that can be contributed to a plan by you and your employer combined rises to $61,500 from $58,000 in 2021. However, the amount of the catch-up contribution for taxpayers aged 50 and older remains at $6,500.

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Traditional IRA Income Restrictions To Deduct Contributions Rise

Contribution limits for IRAs remain unchanged at $6,000 if you are under 50 years old and $7,000 if you are 50 or older. However, the IRS did announce a few other tax changes that impact IRAs in 2022. First, if you are covered by an employer-sponsored plan, your income limit when you’ll still get a deduction for contributing increases.

Single Filers: The maximum deduction is reduced at $68,000 in 2022 (up from $66,000 in 2021) and is completely eliminated at $78,000 or more (up from $76,000).

Married Filing Jointly: The maximum deduction is reduced at $109,001 (up from $105,001 in 2021) and is completely eliminated at $129,000 (up from $125,000). 

If your spouse is covered but you aren’t, your maximum deduction is reduced at $204,001 in 2022 (up from $198,000 in 2021) and is completely eliminated at $214,000 (up from $208,000).

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Income Limits To Contribute to a Roth IRA Rise

Roth IRAs offer after-tax savings for retirement, but if your income is too high for the year, you’re not allowed to make a contribution.

Single filers: For 2022, your maximum contribution is reduced when your modified adjusted gross income is $129,000 (up from $125,000 in 2021) and eliminated at $144,000 (up from $140,000).

Joint filers: Your maximum contribution is reduced when your modified adjusted gross income is $204,000 (up from $198,000) and eliminated at $214,000 (up from $208,000).

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Standard Deduction Rises for All Filing Statuses

All taxpayers are entitled to the standard deduction unless they choose to itemize their deductions. The 2022 standard deductions for all filing statuses are as follows:

Single: $12,950 (up from $12,550 in 2021)

Head of Household: $19,400 (up from $18,800)

Married Filing Jointly: $25,900 (up from $25,100)

Married Filing Separately: $12,950 (up from $12,550)

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Still No Limitation on Itemized Deductions

Prior to 2018, if your adjusted gross income was too high, the amount you could claim for certain itemized deductions was limited. However, with the passage of the Tax Cuts and Jobs Act, the limitation on itemized deductions was abolished for tax years 2018 through 2025.

This means that your itemized deductions for things like charitable gifts, taxes paid, interest paid, job expenses and other miscellaneous deductions continue to remain available, regardless of your income level. Once this provision expires in 2025, the limitation on itemized deductions based on income will be restored unless a new tax law is passed.

It is likely still more beneficial to take the standard deduction, since that doubled with the passing of the TCJA.

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Personal Exemptions Remain Unavailable

The value of a personal exemption was $4,150 back in 2018. However, with the passage of the Tax Cuts and Jobs Act, the personal exemption was eliminated. For 2022, personal exemptions remain at zero, just like in 2021.

Exemptions were formerly used as a way to reduce your taxable income. When exemptions were in place, you could claim one per dependent, including yourself, your spouse (if married and filing jointly) and anyone who qualified as an additional dependent.

To compensate for the loss of personal exemptions, the standard deduction was increased dramatically. Exemptions may return if tax laws change again, but for 2022, you cannot claim a personal exemption.

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HSA Contribution Limits Go Up

Health savings accounts let you save money in a special tax-advantaged account for future medical expenses. In 2022, the amount you can stash away increases to $3,650 for self-only coverage (up from $3,600 in 2021) and $7,300 for taxpayers with family coverage (up from $7,200).

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Estate Tax Exemption Limits and Gift Tax Limits Rise

In 2022, the federal estate tax exemption rises to $12.06 million from $11.7 million in 2021. The gift tax annual exclusion — or the amount you can give each person before you use up some of the estate tax exemption (or owe gift taxes) — increases to $16,000 from $15,000, where it had been since 2018.

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Capital Gains Tax Thresholds Increase

Capital gains tax is tax you pay on profits you make when you sell an asset, like stock. Although the capital gains tax rates for long-term investments, which are those you’ve held for at least a year, remain the same in 2022, the income thresholds have been increased. 

Capital Gains Tax RateSingle Filer Taxable IncomeMarried Filing Jointly Taxable IncomeHead of Household Taxable IncomeMarried FIling Separately Taxable Income
0%Less than or equal to $40,400Less than or equal to  $80,800Less than or equal to $40,400Less than or equal to $40,400
15%More than $40,400 but less than or equal to $445,850More than $80,800 but less than or equal to $501,600More than $54,100 but less than or equal to $473,750 More than $40,400 but less than or equal to $250,800
20%More than $445,850More than $501,600More than $473,750More than $250,800
Source: IRS

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Daria Uhlig and Michael Keenan contributed to the reporting for this article.