Every year, the Internal Revenue Service announces cost-of-living adjustments that affect contribution limits for retirement plans and various tax deduction, exclusion, exemption, and threshold amounts. Here are a few of the key adjustments for 2022.
Estate, Gift, and Generation-Skipping Transfer Tax
•The annual gift tax exclusion (and annual generation-skipping transfer tax exclusion) for 2022is $16,000, up from $15,000 in 2021.
•The gift and estate tax basic exclusion amount (and generation-skipping transfer tax exemption) for 2022is $12,060,000, up from $11,700,000 in 2021.
Standard Deduction
Taxpayers can generally choose to itemize certain deductions or claim a standard deduction on their federal income tax returns. In 2022, the standard deduction is:
•$12,950 (up from $12,550 in 2021) for single filers or married individuals filing separate returns
•$25,900 (up from $25,100 in 2021) for married joint filers
•$19,400 (up from $18,800 in 2021) for heads of house hold The additional standard deduction amount for the blind and those age 65 or older in 2022 is:
•$1,750 (up from $1,700 in 2021) for single filers and heads of household•$1,400 (up from $1,350 in 2021) for all other filing statuses.
Special rules apply for those who can be claimed as a dependent by another taxpayer.
IRAs
The combined annual limit on contributions to traditional and Roth IRAs is $6,000 in 2022 (the same as in 2021), with individuals age 50 or older able to contribute an additional $1,000. The limit on contributions to a Roth IRA phases out for certain modified adjusted gross income (MAGI) ranges(see chart).For individuals who are covered by a work place retirement plan, the deduction for contributions to a traditional IRA also phases out for certain MAGI ranges(see chart).The limit on nondeductible contributions to a traditional IRA is not subject to phase out based on MAGI.
Employer Retirement Plans
•Employees who participate in 401(k), 403(b), and most 457 plans can defer up to $20,500 in compensation in 2022 (up from $19,500 in 2021);employees age 50 or older can defer up to an additional $6,500 in 2022 (the same as in 2021).
•Employees participating in a SIMPLE retirement plan can defer up to $14,000 in 2022 (up from $13,500 in2021), and employees age 50 or older can defer up to an additional $3,000 in 2022 (the same as in2021).
Kiddie Tax: Child’s Unearned Income
Under the kiddie tax, a child’s unearned income above$2,300 in 2022 (up from $2,200 in 2021) is taxed using the parents’ tax rates.
