The standard Medicare Part B premium is set to shoot up from $148.50 in 2021 to $170.10 in 2022. One reason for the sharp increase: making up for a 2021 cap on this premium that was part of a package of covid relief.
Most of those on Medicare will receive an increase in Social Security benefits much greater than the increase in this premium. The Centers for Medicare & Medicaid Services (“CMS”) estimates, for example, that someone now receiving a Social Security benefit of $1,565 will see the net monthly benefit go up by about $70.
Your mileage may vary. In particular, high-income individuals face higher (sometimes much higher) Medicare Part B premiums. CMS says the higher costs apply to about 7 percent of those enrolled.
Most of the federal tax figures get adjusted each year for inflation. That’s something to be happy about. It means the amount of money you can earn before you hit the next tax bracket is larger. The standard deduction increases, as do various other tax benefits.
A year ago, with inflation nearly nonexistent, figures adjusted by a mere 1%. New figures for 2022 reflect recent price increases, upping tax figures by about 3% on average.
As always, rounding rules can make these changes somewhat uneven. This year’s adjustment wasn’t enough to change the IRA contribution limit, which remains at $6,000 ($7,000 for those age 50 or older) for 2022. Yet the elective deferral limit — this is the limit for 401k and similar plans — gets a $1,000 boost. Savers can stash up to $20,500 ($27,000 if age 50 or older) in these retirement accounts in 2022.
One other adjustment you may wish to note is a $1,000 hike in the annual gift tax exclusion. For 2022, you can give me up to $16,000 without having to file a gift tax return. Gifts at this maximum amount will be gratefully acknowledged.
Tax brackets for 2022, and various other adjusted figures, are available in our Reference Room.
Despite being a huge, consequential piece of legislation, the Infrastructure Investment and Jobs Act barely touches the Internal Revenue Code. It contains a couple of provisions that will be of interest to some:
- The employee retention credit will end three months earlier than its previously set expiration date.
- Beginning with transactions taking place in 2023, cryptocurrency exchanges will have to provide tax reports to their customers and to the IRS, similar to reports already provided by stockbrokers when their customers sell stock.
What happened to proposals to “tax the rich” or make other changes in the tax law? Those ideas were never meant for this law. Stay tuned to learn what changes Congress makes in our tax laws in the “reconciliation” package now being debated.
Here’s the reason some key retirement contribution figures didn’t change for 2021.
Once upon a time, inflation went hand-in-hand with tax increases. Wages and prices would rise while tax brackets and deduction limits remained unchanged. The same amount of real, inflation-adjusted income would produce a higher payment to the IRS. Taxpayers would fall behind while standing still.
Nowadays we get annual adjustments in most tax figures. Some of these numbers stay the same because of rounding rules, however. They may go up only when accumulated inflation is enough to push them over the next $500 increment, for example.
This is what happened to the key retirement savings figures for 2021. The IRA contribution limit remains at $6,000 ($7,000 if age 50 or older). The ceiling on contributions to 401k and similar plans, including the Thrift Savings Plan for federal employees, stays at $19,500, with the 50-and-over catch-up contribution capped at $6,500. Inflation wasn’t enough to budge the $13,500 limitation for SIMPLE retirement accounts.
Aggressive savers will be disappointed to see these figures repeat for 2021. Look at the bright side, though. We’re stuck on these numbers because of historically tame inflation ⚊ and when it comes to retirement savings, that’s a Very Good Thing.
More retirement plan figures, and other inflation adjustments, are available in our Reference Room.
For 2020 only, we have a special charitable contribution deduction, allowing up to $300 for those who don’t itemize. This allowance doesn’t follow the usual rules, though. Here are three things you’ll want to know about this charitable deduction.
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