Welcome to WCS Money Tutorials. Today’s topic is 2022 Tax Updates. Most of these updates
are adjustments for inflation. The screens in this video will show both 2021 and 2022
values. I will not read everything from the screen. I will just point out the important
points or changes that would affect most people. You can freeze any of the screens
to examine the other changes more fully. The standard deduction increases to $12,950 for
single taxpayers, $19,400 for head of household, and $25,900 for married couples filing jointly.
The additional standard deduction is added to the basic standard deduction
for taxpayers who are at least 65 years of age or blind. This deduction has increased
to $1750 for singles and head of households, and $1400 for married or surviving spouses.
You must file an income tax return if your taxable income exceeds your standard deduction.
People who can claim the additional standard deduction will have higher income threshold
requirements. Note that you may have to file a tax return even if your income is less than your
standard deduction. For instance, if you have received advance premium tax credit payments
to lower your health insurance premiums under the Affordable Care Act, then you must file a tax
return to reconcile those payments. Moreover, you must file a tax return to claim certain credits,
such as the earned income tax credit. These are the upper limits for taxable income
brackets. So a single person earning more than $539,900 in 2022 would pay a tax rate of 37% on
that amount exceeding the upper limit for the 35% bracket. There is also a marriage penalty for the
35% and especially for the 37% bracket, meaning that spouses would pay more income taxes than they
would if they each filed as single taxpayers. These are the adjustments for the long-term
capital gains rate. The 0% rate applies roughly to people in the 10% or 12% tax bracket while the 15%
bracket applies to people in the 22% to 35% brackets for ordinary income. However, the 20%
capital gains bracket starts well below the 37% income tax bracket, so people in the upper portion
of the 35% bracket will also pay the highest long-term capital gains rate of 20%. For instance,
for a married couple filing jointly, the 20% long-term capital gains rate starts at $517,201
while the 37% bracket for income taxes starts at $647,850, a difference of more than $130,000.
Moreover, if your income exceeds $200,000, or $250,000 if married filing jointly,
which is not adjusted for inflation, then there is an additional Net Investment Income Tax of
3.8%. So, some people in the 15% bracket may also have to pay the 3.8% surtax.
The adoption credit has been increased to $14,890 for those whose modified adjusted
gross income does not exceed $263,410. However, the credit starts phasing out at $223,410,
meaning that people within that range receive a smaller credit.
The earned income tax credit is potentially the largest refundable tax credit, meaning
that you can receive this credit even if your tax liability is less than the credit. The portion
exceeding your tax liability is simply refunded. The minimum age limit for childless taxpayers who
can claim this credit has been reduced from 25 to 19 and the maximum age limit of 65 has been
eliminated, so senior citizens may also claim this credit, even if they do not have children.
The Social Security wage base has been increased to $147,000 for 2022, so employees with incomes
exceeding this amount will not have to pay Social Security taxes on that excess amount. However,
the wage base is higher for self-employed people because they can deduct the employer
portion of the payroll taxes, which means that the self-employed will pay the highest Social Security
tax when their income equals $159,177 in 2022. If you are younger than full retirement age and
collecting Social Security, then you may have to pay taxes on your Social Security if your
earnings from work exceed $19,560 in 2022. For the year when you reach full retirement age,
the amount increases to $51,960. The limits on contributions to health
savings accounts will increase to $3650 for single coverage and $7300 for family coverage.
The contribution limits to IRA accounts will not change in 2022.
However, income limits for making contributions by taxpayers not covered by an employer plan
have been increased. The limits for taxpayers
or their spouses who are eligible for an employer plan have also increased.
The base contribution for SIMPLE IRAs has increased to $14,000.
The annual employee compensation limit that can be used as a basis for non-elective contributions
by the employer has increased to $305,000. The limit for retirement contributions to 401(k)
and related plans has also increased. The maximum employee contribution limit increases to $20,500.
The modified adjusted gross income limits for the Retirement Savings Contribution Credit,
sometimes known as the Saver's Credit, has also increased.
The credit percentage depends on modified adjusted gross income.
If your income is near the boundaries of these credit percentages, then you can qualify for
a higher percentage rate if you make deductible contributions to a qualified retirement account,
since such deductions lower your adjusted gross income. You can still receive this
credit if you contribute to a Roth account, but the contributions will not lower your AGI, so,
in this case, it could be much more beneficial to contribute to a traditional IRA rather than
a Roth IRA if you can lower your AGI enough to qualify for a higher credit percentage.
The same deductible contributions may also increase your Premium Tax Credit used to
purchase health insurance under the Affordable Care Act, and it may also increase other credits.
Trust and estates must also pay taxes on income and capital gains. The tax bracket
percentages for trusts and estates are similar to the tax brackets for people,
but there are fewer brackets, and the brackets start at much lower incomes. For instance,
the 37% tax rate applies to trust taxable income exceeding a mere $13,450 in 2022
and $13,700 for the 20% long term capital gains tax. The 3.8% Net Investment Income Tax
also applies to investment income taxed at 20%, yielding a net tax of 23.8%.
The gift tax annual exclusion increases to $16,000.
The unified tax credit is used to offset taxes that would otherwise
apply to gratuitous transfers, such as gifts and bequests. This credit has been increased
so that taxpayers may exclude $12,060,000 of gratuitous transfers from gift or estate tax.
Remember, for 2021, you can claim a deduction of up to $300 for cash contributions
made to a qualifying charity, or $600 for married couples filing joint returns.
Unlike regular charitable contributions, you can use this special deduction without itemizing.
Starting in 2023, cryptocurrency brokers, such as Coinbase,
will be required to keep records of their customers and their transactions and report
them to the IRS in the same way that stockbrokers must report stock transactions. Customer names,
addresses, and phone numbers must be disclosed along with gross proceeds from sales or any
capital gains or losses of cryptocurrencies. Businesses receiving payments of $10,000
or more in cryptocurrency must report the identity of the sender to the government.
This is basically the same law that applies to cash transactions of $10,000 or more.
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