What's New From the IRS
The start of a new year brings yearly adjustments from the IRS, encompassing more than 60 tax provisions that adjust annually for inflation. Below are some of the changes that stand out the most and could have the broadest impact on your financial plan in 2022 or tax return filed in 2023.
Retirement Contributions Limits
- Individuals can contribute an extra $1,000 into their 401(k) and 403(b) plans – making the limit now $20,500, up from $19,500 for 2021. If you were born before 1973, you can contribute an additional $6,500 as a catch-up contribution.
- The general limit on total employee and employer contributions to defined contribution plans such as a 401(k), 403(b), or SEP rises $3,000 to $61,000 ($67,500 with the catch-up contribution).
- Limits on contributions to traditional and Roth IRAs remain unchanged at $6,000. If you were born before 1973, you can still contribute an additional $1,000 as a catch-up contribution.
- Income limits on Roth IRA contributions increase with phaseouts beginning for individuals earning more than $129,000 and for married couples earning more than $204,000.
- Tax deduction income limits for traditional IRAs also increase with phaseouts beginning for individuals earning more than $68,000 and for married couples earning more than $109,000. The phaseout begins at $204,000 for a married couple if only one spouse is covered by a plan at work and the contribution is for the uncovered spouse.
Required Minimum Distributions
- For the first time in 20 years, the IRS changed the life expectancy tables for calculating RMDs for 2022 and beyond. The updated tables reflect more current mortality rates, allowing distributions to be spread out over a more extended period. This results in lower required distributions than the prior tables.
Health Savings Accounts
- The annual limit on contributions to HSAs increases to $3,650 for individual coverage and $7,300 for family coverage. If you were born before 1968, you can contribute an additional $1,000.
Social Security and Medicare
- The Social Security annual wage base for 2022 is $147,000, an increase of $4,200. The Social Security tax rate remains at 6.2% for both employees and employers.
- There continues to be no wage cap on the Medicare tax of 1.45% of compensation for both employees and employers. Individuals continue to pay an additional 0.9% surtax on wages, and self-employment income over $200,000 for singles and $250,000 for married couples.
Annual Gift Tax Exclusion
The annual gift tax exclusion has increased from $15,000 to $16,000. Individuals can give $16,000 in 2022 ($32,000 for married couples) to any number of recipients without any concern for gift or estate taxes.
If you have any questions regarding any of these changes from the IRS, we encourage you to reach out to our team to schedule a complimentary consultation at dksfinancialstrategies.com.