Annual Gift Tax Exclusion for 2022 Increases to $16,000.00

Due to surging inflation, the  Internal Revenue Service (IRS) announced that the annual exclusion for 2022 will be $16,000, up from the current $15,000. 

The rate of inflation hit a 31-year high in October.  Shortly thereafter, the IRS announced adjustments to certain inflation-indexed tax provisions for returns filed in 2023.

The inflation adjustments for tax years 2021 and 2022 inform taxpayers what they might expect going forward. In the event that inflation isn’t temporary, the adjustment determinations now will be all the more important come tax time in 2023. The other changes follow:

New standard deduction, tax brackets, gift tax and EITC

• The standard deduction rises to $25,100 for married couples filing jointly in their 2022 returns. That’s a $300 increase. It rises to $25,900 for 2023 returns, an $800 rise.

• For single filers and married individuals filing separately, the standard deduction in 2021 returns climbs to $12,550, a $150 increase. The following year, the deduction increases to $12,950, a $400 increase.

• The income levels applying to each tax bracket are increasing up and down the income scale. For example, in 2021 returns, the top 37% rate applies to individuals making $523,600, or $628,300 for married couples filing jointly. In 2022 returns, the richest households face the top rate for incomes above $539,900 or $647,850 for married couples filing jointly.

• The annual exclusion on the gift tax rises for the first time in several years. From 2018 to 2021, $15,000 was the threshold before taxes applied on gifts, according to the IRS. It rises to $16,000 in 2022, with returns filed in 2023.

• The Earned Income Tax Credit, a credit for low- and moderate-income households, also increases. For example, the maximum credit for 2021 returns of qualifying households with three or more eligible children is $6,728. The following year, households with three or more kids will receive $6,935, the IRS said. The American Rescue Plan passed in March expanded the EITC’s rules, qualifications and potential payouts, particularly for workers without children.

Inflation Indexed Annuities in Aging in Place Planning

Illustration 217469610 © Adonis1969 | Dreamstime.com

Rarely do articles on this blog deal with specific investment options.  Recently, however, while speaking with a client, she shared a feeling of helplessness following a meeting with her financial advisor.  A few phone calls sorted her options and planning.  This article is designed to educate readers regarding a planning option with which, apparently, some advisors and agents are unfamiliar.

Many who plan financially for aging in place focus on guaranteed income, rather than relying on large liquid amounts invested for further growth through investment risk. Aside from other arguments against risking principal, there is the simple fact that alternatives to institutional care (nursing homes and assisted living facilities) involve periodic costs, usually paid monthly or weekly.  In other words, if you have a healthy guaranteed income, within which you can easily meet additional expenses, the prospect of alternative care cost is not as disruptive as it might be otherwise. 

The issue that is increasingly on everyone's lips, however, is inflation.  Whether inflation is already built in to our economy, soon to arrive and/or well-in-hand by our Federal Reserve Bank, this article will leave to others to debate. A college economics professor once characterized inflation as not unlike water- a little bit is necessary and good, but a lot can kill you.  Regardless, even the long-term care industry is concerned.    

Sometimes called an inflation-protected annuity, an inflation-indexed immediate annuity is similar to a fixed annuity. You receive a guaranteed stream of income from the insurance company for the rest of your life. With an inflation-indexed annuity, however, payments increase (or sometimes decrease) each year, keeping pace with the rate of inflation.

An inflation-indexed annuity tracks standard measures of inflation, typically, the consumer price index (CPI)(one measure of the rate of change of the cost of a selected basket of goods, reflecting the rate of inflation). The monthly income from this form of annuity gradually changes with the CPI. Since money loses purchasing power with inflation, inflation index-tracking annuities theoretically allows your money to retain that power as inflation fluctuates.

Inflation-adjusted annuities have one obvious drawback: they initially begin with smaller payments than a traditional fixed payment plan. The effect of this is that it might take decades for the inflation-adjusted income to catch up to the fixed payment, which means there is a distinct possibility of reduced payouts for life if you die before they catch up.

Talk to you investment advisor, financial planner, or insurance agent.  This article doe not constitute financial advice, and is merely educational.  Your advisor can make specific recommendations after considering your circumstances, needs, goals, and objectives.    

2016 Medicare Pemiums to Increase- Social Security Benefits Stay Flat

According to Mark Miller, writing for RetirerementRevised, "retirees are facing a double-whammy next year: no inflation adjustment in their Social Security benefits and a whopping 52 percent jump in certain Medicare premiums."

The article continues: 

Medicare premium hikes will hit only 30 percent of beneficiaries – those who are not protected from a “hold-harmless” provision in federal law that prohibits any premium hike that produces a net reduction in Social Security benefits. But the likely increases suggest strongly that the recent trend of moderate healthcare inflation is ending.

Let’s start with the Social Security news. Final figures for 2016 will not be available until the fall, but the recent annual report of Social Security’s trustees projects that there will not be any cost-of-living adjustment (COLA) next year. The COLA is determined by averaging together third-quarter inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Inflation has been flat due to collapsing oil prices.

On the healthcare front, renewed cost pressures are pointing toward much higher Medicare premiums starting next year, according to the Medicare trustees’ annual report.

Consider the monthly premium for Part B (outpatient services), which has stayed at $104.90 for the past three years. The Medicare trustees projected that the premium will jump 52 percent, to $159.30 for beneficiaries who are not protected by the hold harmless provision.

That would include anyone enrolled in Medicare who is not yet taking Social Security benefits due to a decision to delay enrollment. It also would include new enrollees in Medicare next year. (The increase also would be applied to low-income beneficiaries whose premiums are paid by state Medicaid programs).

High-income retirees – another group that is not protected by the hold-harmless provision – also will be hit hard if the trustee projections hold.

Affluent seniors already pay more for Medicare Part B and also Part D for prescription-drug coverage. This year, for example, higher-income seniors pay between $146.90 and $335.70 monthly for Part B, depending on their income, rather than $104.90.

The Medicare trustees now project that to jump even more.

Go here to read the whole article.