Though there’s still a lot of uncertainty, the estate planning and elder law picture for next year is coming into focus. Here are some of the changes for 2022 — both known and uncertain. We’ve organized them by categories that might help you figure out which are more important for you.
Changes affecting low-income individuals
Every year Social Security and Supplemental Security Income payments increase with the cost of living. Well, technically, that’s not quite right: in three recent years (2009, 2010 and 2015) inflation was so low that no increases were handed out. But this year the COLA increase is the largest it has been since 1981.
All Social Security and SSI benefits will increase by 5.9% starting with checks received in January. That means that about 8 million SSI recipients will see a significant increase. Most will go to the highest monthly amount, which will be $841 (up from $794 in 2021). Some states (not including Arizona) add an extra amount to that payment.
Social Security Disability (SSD or, sometimes, SSDI) is more variable. Payments are based on the disabled individual’s work history and, sometimes, family arrangement. But the “average” SSD recipient will see an increase from $1,282 per month to $1,358, according to the Social Security Administration.
The maximum Earned Income Tax Credit, meanwhile, will increase to $6,935 (from $6,728 in 2021). That tax benefit is available to wage earners with low investment income. It is usually thought of as a benefit for parents, but even childless individuals (and couples) can qualify. Want to know whether you qualify? Answer the questions in this article and you can figure it out.
Changes for 2022 affecting most Americans
The 2022 standard income tax deductions will also go up for 2022. But note that these new numbers will not be effective until you file your 2022 tax return (in early 2023).
The standard deduction on your 2021 tax return (the one you file before April 15, 2022) will be $25,100. Or, at least, that’s what it will be for a married couple. That figure is scheduled to increase to $25,900 for the return you file at the beginning of 2023.
Not married? Your individual standard deduction is $12,550 this year. But when you file in 2023, you’ll claim a $12,950 deduction. Unless, of course, you get married next year. If you do: Mazel Tov!
Then there’s the gift tax. Almost no one ever incurs an actual gift tax. But if you make a gift over $15,000 this year, you have to file a return. You don’t pay any actual tax until your lifetime gifts exceed $11.7 million, but you file a return to keep track of how much of that $11.7 million you have used up.
The big news on this front is that the gift tax exclusion amount will go up in 2022 — to $16,000. That means no filing, no tax, no income tax to the recipient — no tax effect at all for the first $16,000 you give to an individual next year. Oh, and the lifetime cap also increases, to $12.06 million. So be generous.
2022 changes for retirees
If you’re over age 65 and on Medicare, you will likely see a $10 increase in your Part B premium payment. It will go from $148.50 to $170.10 — an increase of $21.60 per month. Unless, of course, you have a high income (defined in 2022 as income over $91,000 for an individual, or twice that amount for a couple). Then the Income-Related Monthly Adjust Amount (less-than-fondly referred to as IRMAA by retirees) will increase your premiums. Depending on your income, that increase could be as much as $578.30 per month.
A whole range of Medicare premium, deductible and co-payment changes will also come in with the new year. Want more detail about the elements that particularly affect you? Check out the Centers for Medicare & Medicaid Services website for all the numbers.
Want to maximize your Social Security benefit? If you wait until age 70 to retire, your payment will increase by 2/3 of 1% per month after your full retirement age. If you turn 70 in 2022 and start receiving Social Security benefits on your birthday, that will mean a 32% increase in your monthly payments — for the rest of your life. The maximum Social Security retirement benefit (for someone who earned the highest amount countable toward Social Security and waited to age 70 to claim it) will be $4,194. That figure will presumably increase for those who turn 70 in 2023, though the 32% increase will slide down to 24% as the “full retirement age” begins to creep up for late retirees.
Changes affecting the very wealthy
Of course, news coverage focuses on the figure that affects a relatively small portion of the population. The estate tax exemption (which is also the lifetime gift tax exemption mentioned above) raises next year to $12.06 million. That means that a married couple can pass up to $24.12 million without paying any estate tax at all.
The figure is a little bit more nuanced than that. It is affected by how long a surviving spouse outlives the first spouse to die. Remarriage and lifetime gifts can modify the calculation. And it can require the surviving spouse to file an estate tax return (without paying any tax) on the first death. But it still will take a pretty wealthy individual (or couple) to incur any estate tax at all.
Two changes that mostly affects wealthy individuals: the so-called “back door Roth” IRA contribution will likely be eliminated for 2022. The federal “Build Back Better” bill, if adopted in its current form, would block that technique. It also might eliminate Roth IRA conversions altogether for individuals earning more than $400,000 per year (or married couples earning $450,000). In 2018, about 60% of Roth conversions were undertaken by taxpayers with income between $100,000 and $500,000; under the new law, they’d still be able to take advantage of those tax savings.
Changes affecting families living with a disability
In addition to the maximum SSI increase (to $841) mentioned above, there are a few small changes to other disability-related government programs scheduled for the new year. Perhaps the most important one: an increase in the maximum contribution to ABLE Act accounts.
Since their inception in 2014 (and Arizona’s adoption of its version in 2017), ABLE Act accounts have been a useful tool for families with a disabled member. But for all that time the maximum annual contribution (with some limited exceptions) has been $15,000 per year.
ABLE Act contribution limits are tied to the gift tax exemption amount. It’s not particularly logical, but there it is. And that figure is going up next year — to $16,000. That means the maximum ABLE Act contribution will automatically increase to the same figure.
There’s an Arizona-specific change, already in effect. Beginning with 2021 tax returns (that is, the one you file after the first of the year) you can deduct $2,000 of your ABLE Act contribution on your state income tax return. For married couples, the deduction doubles. And that’s available for each beneficiary you contribute to. So you might get a small state income tax benefit for your ABLE Act contributions.
Weren’t there going to be some big changes for 2022?
Yes, there were. But most of them have been stripped out of the Build Back Better law pending in Congress, and so are not likely to pass. Of course, things could change. But for the moment, it looks like:
- no likely reduction in the estate tax exemption amount. There was discussion of lowering it to $5 million. That idea seems to be dead — for the moment, at least. In 2025 it’s scheduled to reduce to that $5 million figure (indexed for inflation, so probably in the range of $6.5 million or more) if Congress does nothing. And Congress is pretty good at doing nothing.
- no reduction in the lifetime gift tax exemption. The estate and gift tax exemption amounts have been the same for a decade or more. There had been a proposal to reduce the lifetime gift tax exemption to $1 million; that idea seems to have evaporated — at least for now.
- no change in trust rules, or automatic recognition of capital gains every 21 years, or any of the other big changes contemplated in earlier versions of the law. They might come back, but probably not this year. Of course, if they do come back next year, they might be retroactive to the first of the year.
- no increases in the income tax rates themselves. Also, no big changes in the calculation of taxes.
Obligatory closing observation
This is all pretty confusing. And it can be complicated to figure out how it applies to your individual situation. Plus things seem to be very much in flux.
All of that is why we encourage people to visit with their estate planning or elder law attorney on a regular basis. We’ve gone through a decade of relative calm in the estate planning world — and this year that promises to be upended. So stay tuned, and make your appointment soon.