Complete Tax Solutions LLC

The IRS announced that it will issue information letters to Advance Child Tax Credit (CTC) recipients starting in December and to recipients of the third round of the Economic Impact Payments (EIP) at the end of January. Using this information when preparing a tax return can reduce errors and delays in processing, so be sure to provide them to your tax preparer.

The IRS started sending out Letter 6419, which documents the advance Child Tax Credits you received, in late December 2021, and will continue sending them through January 2022. This letter contains important information that can make preparing your tax returns easier, and help your tax preparer determine how much of the Child Tax Credit you are eligible to claim on your 2021 tax return.

The IRS will also begin sending out Letter 6475, titled “Your Third Economic Impact Payment”, to EIP recipients in late January. Like the advance CTC letter, the Economic Impact Payment letter includes important information that can help you quickly and accurately file your tax return. In particular, it can help your tax preparer determine if you are eligible to claim a Recovery Rebate Credit for tax year 2020 or 2021.

The IRS issued the 2022 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2022, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 58.5 cents per mile driven for business use
• 18 cents per mile driven for medical care or moving expenses for purposes of certain members of the Armed Forces
• 14 cents per mile driven in service of charitable organizations

Notice 2022-03 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan, and the maximum fair market value of employer-provided automobiles.

For many people, the end of the year is a time to review charitable gifts that have already been made during the year and to consider making additional charitable gifts before the tax year ends. If you are one of these people, we have a few reminders that you might find helpful.

Expanded tax benefits for those who don’t itemize

The law now permits you to claim a limited deduction on your 2021 federal income tax return for cash contributions made to qualifying charitable organizations even if you don’t itemize your deductions. Individuals can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021, and married individuals filing joint returns can claim up to $600.

Qualified charitable distributions

If you are age 70 ½ or older, you can make a qualified charitable distribution (or “QCD”) of up to $100,000, directly from your IRA to a qualified charitable organization. A QCD is generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. A qualifying deduction may also count toward the taxpayers required minimum distribution requirement for the year.

Cash donations

Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions that are not tax deductible include those:

• Made to a supporting organization
• Intended to help establish or maintain a donor advised fund
• Carried forward from prior years
• Made to most private foundations
• Made to charitable remainder trusts

These exceptions also apply to taxpayers who itemize their deductions.

Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

The IRS announced in November increases to retirement plan limits for 2022. The 2022 contribution limit for 401(k) plans will increase to $20,500, which means that next year you can put an extra $1,000 into your 401(k) plan. The IRS also announced cost‑of‑living adjustments that may affect pension plan and other retirement-related savings in the coming year.

Highlights of changes for 2022

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500 in 2022. Limits on contributions to traditional and Roth IRAs remains unchanged at $6,000.

You can also deduct contributions to a traditional IRA if they meet certain conditions. If neither you nor your spouse is covered by a retirement plan at work, your full contribution to a traditional IRA is deductible. If you or your spouse is covered by a retirement plan at work, the deduction may be reduced or eliminated. The amount of the deduction depends on your filing status and your income.

Traditional IRA income phase-out ranges for 2022

• $68,000 to $78,000 – Single taxpayers covered by a workplace retirement plan
• $109,000 to $129,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
• $204,000 to $214,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
• $0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan

Roth IRA contributions income phase-out ranges for 2022

• $129,000 to $144,000 – Single taxpayers and heads of household
• $204,000 to $214,000- Married, filing jointly
• $0 to $10,000 – Married, filing separately

Saver’s Credit income phase-out ranges for 2022

• $41,000 to $68,000 – Married, filing jointly.
• $30,750 to $51,000 – Head of household.
• $20,500 to $34,000 – Singles and married individuals filing separately.

The amount individuals can contribute to SIMPLE retirement accounts also increases to $14,000 in 2022.

It was announced by the Social Security Administration (SSA) in October that the maximum amount of an individual’s taxable earnings in 2022 subject to Social Security tax will be $147,000, up from $142,800 for 2021. The wage base limit applies to earnings subject to the tax, known officially as the old age, survivors, and disability insurance (OASDI) tax. Because the OASDI tax rate is 6.2%, an employee with total wages from an employer at or above the maximum in 2022 will pay $9,114 in tax, with the employer paying an equal amount.

The Medicare hospital insurance tax of 1.45% each for employees and employers has no wage limit and is unchanged for 2022.

Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly and $125,000 for married taxpayers filing separately) are required to pay an additional hospital insurance tax of 0.9% of wages with respect to employment (also unchanged).

Self-employed individuals pay self-employment tax equal to the combined OASDI and Medicare taxes for both employees and employers, i.e., 15.3%, up to the OASDI wage base and 2.9% in Medicare taxes on net self-employment income above it, with an offsetting above-the-line income tax deduction of half of the OASDI-equivalent component of self-employment tax.

Approximately 70 million Americans will see a 5.9% increase in their Social Security benefits and Supplemental Security Income (SSI) payments in 2022. Federal benefit rates increase when the cost-of-living rises, as measured by the Department of Labor’s Consumer Price Index (CPI-W).

The CPI-W rises when inflation increases, leading to a higher cost-of-living. This change means prices for goods and services, on average, are a little more expensive, so the cost-of-living adjustment (COLA) helps to offset these costs.

The Social Security Administration will mail COLA notices throughout the month of December to retirement, survivors, and disability beneficiaries, SSI recipients, and representative payees. But, if you want to know your new benefit amount sooner, you can securely obtain your Social Security COLA notice online using the Message Center in your my Social Security account. You can access this information in early December prior to the mailed notice. If you don’t have an account yet, you must create one by November 17, 2021, to receive the 2022 COLA notice online.