The average taxpayer spends around 11 hours planning their taxes, submitting forms, and tax-related record-keeping. Businesses spend more than double that. Knowing the 2022 tax changes could considerably decrease the time you spend doing this task. And let's face it – no one finds doing their taxes an enjoyable pastime.
The tax rates have not changed in 2022, but the income tax brackets have increased for all filing statuses since 2021. The adjustments are because of the inflation in the 12 months from September 2020 to August 2021.
This article will look at five 2022 tax changes that could affect you, your family, or your business.
1. Retirement Plan Contributions
Boosting contributions to your employer's retirement plan is one of the best ways to lower taxes now while you save for the future.
This includes 457, 403 (b) or 401 (k) plans. Everything up to $20,500 that you contribute in 2022 reduces your taxable income ($27,000 if you’re over 50). You’ll receive an added boost if your company matches your offerings.
2. Health Savings Accounts
If your employer offers a Health Savings Account (HSA), it will not be taxed on growth. HSAs are funded from your paycheck with pre-tax contributions of up to $3,650 for individuals and $7,300 per family.
You can use these distributions to pay for qualified health expenses, including over-the-counter medications, dental fees, medical equipment, physical therapy, etc.
HSAs are easily transferrable if you decide to change jobs.
3. Life Insurance
Many companies offer life insurance policies (group-term) that allow employees to pay via tax contributions.
If you pay more than $50,000, the excess will be subject to federal income taxes. If needed, you can get more coverage by supplementing your work insurance with an individually purchased insurance policy.
4. Earned Income Tax Credits (EITC)
Aimed at giving low to moderate-income earners and families a tax break, the EITC has increased by $207 in 2022. The amount of credit you receive is dependent on how many children you have, your filing status, and your income.
5. Payroll Taxes
There’s been a hike of $4,200 in the Social Security annual wage base, which is now $147,000. The tax rate on employers and employees has stayed the same (6.2%).
Employers and their workers will continue to pay the Medicare tax with no cap, with workers paying an additional 0.9% Medicare surtax on wages. Self-employed individuals also pay the additional surtax for income over $200,000 for singles and $250,000 for couples. Employers do not have to pay the 0.9% surtax.
The nanny tax threshold has increased by $100 in 2022 to $2,400.
All indications show you may not see the same tax return thanks to several tax law changes but keeping ahead of the curve will help you avoid any financial pitfalls. For a more comprehensive explanation of the effects of the 2022 tax changes on you, your family, or your business, contact one of our experienced advisors.