United States – Pension Plans, Social Security, 2022 Cost of Living Adjustments

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On November 4, 2021, the U.S. Internal Revenue Service (IRS) released an advance version of Notice 2021-61 providing the dollar limitations for qualified retirement plans for tax year 2022.¹  And last month, the Social Security wage limit was increased based on movements in the Consumer Price Index (CPI-W).²

Taxpayers, their employers, as well as their tax service providers and financial advisers, should keep these changes in mind when making decisions around pension plan contributions, and other decisions around pension plan financing, and their tax implications.  

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $20,500 (up from $19,500).

The limitation regarding savings incentive match plan for employees (SIMPLE) retirement accounts for 2022 increases to $14,000 (up from $13,500).

The income ranges for determining eligibility to make deductible contributions to traditional individual retirement arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit increase for 2022, and the deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified adjusted gross income (AGI) within a certain range, as follows:

• For single taxpayers who are covered by a workplace retirement plan, the income phase-out range is increased to $68,000 to $78,000 (up from $66,000 to $76,000).
• For married couples filing jointly, when the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is increased to $109,000 to $129,000 (up from $105,000 to $125,000).
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $204,000 and $214,000 (up from $198,000 and $208,000).
• The income phase-out range for taxpayers making contributions to a Roth IRA is $129,000 to $144,000 (increased from $125,000 to $140,000) for singles and heads of household.  For married couples filing jointly, the income phase-out range is $204,000 to $214,000 (increased from $198,000 to $208,000).
• The income limit for the saver's credit – also known as the retirement savings contributions credit – for low- and moderate-income workers is $68,000 for married couples filing jointly (up from $66,000); $51,000 for heads of household (up from $49,500); and $34,000 for singles and married individuals filing separately (up from $33,000).

The limitations that remain unchanged for 2022, from 2021, include the following:

• The catch-up contribution limit for employees age 50 years and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan, is unchanged at $6,500.
• The limit on annual contributions to an IRA remains unchanged at $6,000.
• The additional IRA catch-up contribution limit for individuals age 50 years and over is not subject to an annual cost-of-living adjustment and remains $1,000.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified AGI within a certain range.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Read a related IRS release, IR-2021-216 (November 4, 2021).

The U.S. Social Security Administration has announced the OASDI contribution and benefit base for remuneration paid in 2022 and self-employment income earned in taxable years beginning in 2022 is increased to $147,000 next year, up from $142,800 in 2021.²  

It is not yet clear what income tax rates will be applicable beginning January 1, 2022.  There is uncertainty as to whether the U.S. Congress will take action on rates in the current infrastructure legislation being considered.  If rate changes are included in legislation that is agreed on and passed by both houses of Congress, then the IRS may have the discretion to issue updates to the tax rate tables.

1  See IRS Notice 2021-61.

2  See: https://www.ssa.gov/news/press/factsheets/colafacts2022.pdf .

For related coverage, see “Notice 2021-61: Pension plans, cost-of-living adjustments for 2022” in TaxNewsFlash-United States (November 4, 2021), a publication of the KPMG International member firm in the United States.

The above information is not intended to be "written advice concerning one or more Federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.

The information contained in this newsletter was submitted by the KPMG International member firm in United States.