The new tax brackets for 2022 were released by the IRS a few weeks ago. In spite of all the rhetoric about increasing taxes, the top tax rate remained unchanged and the increases in the brackets reflect inflation adjustments.
Well after lot of talk and heartache, new tax legislation as contained in the Build Back Better Act wasn’t passed. However, it’s still good to know what might be in new prospective legislation as passed the House. Here are some of the highlights:
- The increased child tax credit and monthly advance payment was extended for 2022. This is on hold for now.
- The deduction for state and local taxes (SALT) was raised to an $80,000 cap from a $10,000 cap. This provision is beneficial to taxpayers in high tax states like California, New Jersey, New York, and Connecticut among others. It’s important to note there is opposition in the Senate to this provision, so it is likely to be amended in the final version of the bill.
- New surtax on ultra-high net worth taxpayers. This only applies to taxpayers with modified adjusted gross income (“MAGI”) in excess of $10 million annually.
- S-corp profits (along with distributions from retirement accounts) would be considered investment income and could be subject to net investment income tax or employment taxes. As currently written, this would begin to phase in at MAGI of $400,000 for single/head of household and $500,000 for married filing jointly taxpayers.
- Expanded Affordable Care Act Premium Tax Credit: Individuals who received unemployment benefits during the tax year are treated as if their income was under 150% of the Federal Poverty Line. Even if you made a lot of money during the year before collecting unemployment or if your spouse is a higher earner and you collected unemployment, you would still qualify for the expanded credit.
- Wash sale rule applied to cryptocurrency, foreign currency transactions, and commodities.
- Backdoor Roths would be eliminated effective 1/1/2022
- Roth conversions for taxpayers in the highest ordinary income tax bracket would be eliminated starting in 1/1/2032.
- Required minimum distributions for retirement accounts with balances in excess of $10m for high income earners. This provision would go into effect 1/1/2029.
These provisions are from the bill that passed the House of Representatives that were being considered/debated in the Senate last month. Nothing is official…yet. The SALT provision appeared to have the most opposition. We’ll see if anything gets done in 2022 on this front. For now, it’s the status quo.