Are you confused by all the recent tax law changes and the effects they may have on your Business or Individual income tax returns that you have no idea how to handle certain situations? Do you want to save on as many Individual and Payroll tax expenses as possible? If so, allow our over eighty years of tax experience to guide you along in a way that will save you income taxes and enable more tax-free money to go into your personal account rather than the IRS. Call us now at 215.550.3636.
Under guidance inRev. Proc. 2022-9issued Thursday, taxpayers may obtain the IRS's automatic consent to change their tax accounting methods to comply with final regulations relating to simpler tax accounting methods available to smaller businesses.
Those final regulations, issued early in 2021 (T.D. 9942), implemented changes made by the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, that generally exempt from more complex requirements businesses with average annual gross receipts of no more than $25 million (adjusted for inflation to $26 million for 2021). The final regulations apply to tax years beginning on or after January 5, 2021 (or for contracts entered into in those tax years).
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These simpler methods (called "small-business taxpayer exemption methods" in the revenue procedure) are found in Secs. 263A (capitalization and inclusion in inventory costs of certain expenses), 448 (cash method of accounting), 460 (long-term contracts), and 471 (inventories), effective for tax years beginning after December 31, 2017. The gross-receipts test is at Sec. 448. For more on these TCJA changes, see Clark, "Relief for Small Business Tax Accounting Methods," JofA, January 1, 2019.
Thursday's revenue procedure modifies Rev. Proc. 2019-43 (as modified by Rev. Proc. 2021-34) providing guidance on automatic consent procedures under Sec. 446. It also provides procedures for taxpayers to revoke an election made under the proposed regulations.
Besides automatic changes to apply a small business taxpayer exemption method under the final regulations, procedures under the revenue procedure include:
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Automatic changes for taxpayers that no longer qualify for a small business taxpayer exemption method under the final regulations, including those changing to a uniform-capitalization (UNICAP) method specifically described in the regulations.
A modified procedure for reseller-producers changing from a permissible simplified resale method to be consistent with other changes by allowing such taxpayers to change only to a permissible UNICAP method specifically described in the regulations.
An automatic change for taxpayers using an accrual method for purchases and sales of inventories and the cash method for computing all other items of income and expense to change to an overall accrual method.
Automatic changes to an accrual method for purchases and sales of inventories and using the cash method for computing all other items of income and expense.
Employers that received an advance payment of the employee retention credit (ERC) or reduced their employment tax deposits in anticipation of receiving the ERC for the fourth calendar quarter of 2021 may repay or deposit the taxes without penalty under guidance issued Monday by the IRS (Notice 2021-65).
The guidance became necessary when the ERC was terminated a quarter early by the enactment of the Infrastructure Investment and Jobs Act, P.L. 117-58, at the end of the third calendar quarter of 2021 (for employers other than recovery startup businesses under Sec. 3134(c)(2)).
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Section 80604 of the Infrastructure Act amended Sec. 3134(n) to provide that the ERC under Sec. 3134 applies to wages paid after June 30, 2021, and before October 1, 2021, or in the case of wages paid by an eligible employer that is a recovery startup business, January 1, 2022. As originally enacted by the American Rescue Plan Act, P.L. 117-2, December 31, 2021, was the end point for wages paid by all eligible employers.
An advance payment of any portion of the ERC in excess of the amount to which a taxpayer is entitled is an erroneous refund that the employer must repay and, but for Monday's notice, is subject to penalties for failure to pay the corresponding employment taxes. Employers that received such advance payments may repay them by the due date of their applicable employment tax return that includes the fourth calendar quarter of 2021 and so avoid failure-to-pay penalties.
Likewise, employers that reduced their deposits due with respect to wages paid on or after October 1, 2021, but before January 1, 2022, by the amount of an ERC they expected to claim (and are not recovery startup businesses) must deposit those taxes. They may have penalties waived for failing to deposit those taxes, but only with respect to deposits due before December 20, 2021.
The IRS will not waive failure-to-deposit penalties for such reductions after December 20, 2021.
The waiver of failure-to-deposit penalties is also subject to three other conditions:
The employer reduced its deposits in anticipation of the ERC, consistent with the rules provided in Section 3.b. of Notice 2021-2024;
The employer deposits the amounts it had retained in anticipation of claiming the ERC on or before the relevant due date for employment taxes with respect to wages paid on December 31, 2021, (regardless of whether the employer actually pays wages on that date); and
The employer reports the tax liability resulting from the termination of the employer's ERC on the applicable employment tax return or schedule that includes the period from October 1, 2021, through December 31, 2021.
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For employers that do not qualify for relief, the IRS will consider reasonable cause relief if the employers reply to a notice about a penalty with an explanation.
In aletterto congressional tax-writing leaders on October 26, before the enactment of the Infrastructure Act, the AICPA noted that sunsetting provisions in pending legislation like the Infrastructure Act causes confusion among employers and practitioners. If the legislation were enacted with the sunset of the ERC, the letter said, Congress should direct the IRS and Treasury to waive any penalties "and provide a reasonable, practical method" to pay the employment taxes due.
After decreasing two years in a row, the rate by which taxpayers may compute their deductions for costs of using an automobile for business purposes will go up to 58.5 cents per mile for the 2022 tax year, an increase of 2.5 cents per mile over the 2021 rate.
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Notice 2022-03, in which the IRS announced the update on Friday, also provides the standard mileage rate for use of an automobile for purposes of obtaining medical care under Sec. 213, which will be 18 cents per mile, up 2 cents from 2021. The rate for providing services to a charitable organization remains the same, set by statute at 14 cents per mile (Sec. 170(i)).
The same rate as for medical care, 18 cents per mile, also applies to the deduction for moving and storage expenses under Sec. 217(g) by members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station.
Taxpayers may use the business standard mileage rate for their use of an automobile as an ordinary and necessary business expense. Or they may claim actual allowable expense amounts if they substantiate the expenses, including by maintaining adequate records or other sufficient evidence.
The Tax Cuts and Jobs Act (TCJA), P.L. 115-97, suspended for tax years 2018 through 2025 the miscellaneous itemized deduction under Sec. 67 for unreimbursed employee business expenses, including those incurred in the use of an automobile. However, the business standard mileage rate can still be used during this period as the maximum amount an employer can reimburse an employee for operating an automobile for business purposes without substantiating the actual expense incurred.
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The portion of the business standard mileage rate that is treated as depreciation for purposes of calculating reductions to basis will be 26 cents per mile for 2022, the same as for 2021.
Notice 2022-03 also provides the maximum standard automobile cost under a fixed-and-variable-rate (FAVR) plan of $56,100 for automobiles (including trucks and vans), up $5,000 from 2021. Under a FAVR plan, a standard amount is deemed substantiated for an employer's reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer. The same amount also applies as the maximum fair market value of automobiles (including trucks and vans) first made available in calendar year 2022 for purposes of the fleet-average valuation rule in Regs. Sec. 1.61-21(d)(5)(v) and the vehicle cents-per-mile rule under Regs. Sec. 1.61-21(e).
The diamond business has long had the four C's (color, cut, clarity, and carat). But since the pandemic, alternative asset investors have had their own four C's (COVID, crypto, capital gains … and lately, California).
Our CPA firm has received numerous inquiries over the last 12 months about how crypto assets can be matched with OZ investing. We are working on a few crypto mining businesses, solar/crypto combinations, and even crypto ATM businesses.
Even before the pandemic, crypto asset investing was short-term and speculative in nature, with many crypto exchanges encouraging high-frequency trading. While professional investors have made (and lost) huge fortunes on crypto assets, many ordinary investors have also racked up substantial short-term capital gains. Those gains are generally taxed at a current 37% federal rate for high-income individuals, plus the 3.8% net investment income tax — or a combined 40.8%.
Add an additional 13.3% in state levies for higher-income California residents, and you get a 54.1% combined tax rate — which is likely to be even more painful if the Biden administration's tax plan, or portions of it, are implemented in 2022. Further, Washington state is now imposing an additional 7% tax on the capital gains of its high-net-worth residents.
As a result, many novice investors, and even some of your financially savvy clients, may find themselves in unfamiliar tax brackets. More often than you think, they may be turning to the federal OZ program because they've heard it offers many legal ways to defer, if not substantially mitigate, their capital gain tax. And because there's a social consciousness facet to the OZ program, it has become even easier for taxpayers to rationalize crypto-fueled OZ investing to themselves and to their peers.
Key considerations
If you have clients in this bucket, just make sure they know the facts before diving headlong into the deep end of the OZ pool (notice I didn't say "dip their toes in"). Here are three key considerations that we encourage practitioners and taxpayers to understand:
Capital gains timely invested into a QOF are deferred until the earlier of: (a) the time that the amounts are withdrawn or otherwise triggered under the "inclusion event" rules, or (b) Dec. 31, 2026.
After holding the QOF interest for at least five years, the taxpayer's basis in the QOF is increased by 10% of the original amount invested, and the reportable gain drops to 90% when recognized.
Taxpayers holding their QOF investment for at least 10 years can exclude 100% of the post-reinvestment appreciation in the QOF and in the underlying assets held by the QOF — including any eligible qualified opportunity zone business property (QOZBP) into which the QOF invests.
While the OZ program was not designed with crypto assets in mind, a growing number of OZ investors are exploring ways to layer crypto assets into their OZ funds.
Crypto investors tend to be frenetic traders who aren't content to sit on the sidelines. If OZ advisers are working with crypto investors, they should be careful to establish both the QOF and qualified opportunity zone business (QOZB) well in advance of the taxpayer's 180-day investment deadline to avoid limiting the taxpayer's ability to trade. The taxpayer/investor also needs to be clear that the gains and losses incurred from trading within the QOF or QOZB will generally flow out to the equity owners when using tiered partnerships (the structure used more than 90% of the time). These interim crypto gains (recognized by December 31, 2026, and reinvested no later than early September 2027) can be further deferred by timely investing into another QOF. Reinvesting these gains into the same QOF will not result in a secondary tax deferral due to the circular cash flow provisions contained in the regulations.
The OZ program offers a very effective solution for deferring gains and allows investors to diversify into real estate or operating businesses. Often these investors are interested in tech, blockchain, crypto, and/or cannabis.
Challenges
Many crypto investors are interested in re-investing their gains into additional crypto assets, but there could be challenges. For instance, there's the issue of "mixed-fund" treatment when appreciated crypto is invested into a QOF in lieu of cash. Currently, there are some unsettled areas in the compliance rules for OZ entities holding crypto. For example, a limit of only 10% of the QOF's balance can be invested into non-QOZBP at the QOF level, which may include crypto. At the QOZB (subsidiary) level there is an added limitation thanks to a 5% nonqualified financial property (NQFP) rule that generally limits QOZB-level investments to cash, marketable securities, and notes with maturities greater than 18 months.
Gray areas about crypto in the OZ final regulations
Since crypto assets are not specifically included in the definition of NQFP, there may be some wiggle room in the final OZ regulations. However, crypto assets may be included in the "or similar property" reference in the NQFP definition. Some OZ advisers believe that the 5% limit may not apply to crypto assets at the QOZB level and that it might be able to hold as much as 30% crypto under the QOZB 70%/30% testing rules.
Under the relevant definition, NQFP includes "debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities, and other similar property" specified in the regulations (Sec. 1397C(e); see also T.D. 9889). Significantly, reasonable amounts of working capital (see the Bardahl formula) held in cash, cash equivalents, or debt instruments with a term of 18 months or less are excluded from the definition of NQFP. In addition, accounts or notes receivable generated in the normal course of business are excludable.
OZ investors should proceed with caution since the IRS may take a more restrictive view of how crypto does (or does not) fit into the definition of NQFP. Rather than gamble with the uncertainty of the regulations, taxpayers can pledge their QOF interest and secure a low-interest margin account and invest 50% or more of their QOF value (depending on the lender's loan policies) outside the OZ structure.
Another potential exception to allow broader QOZB-level investment options is a short-term rule that may allow for an even greater investment percentage during the 31- to 62-month working capital safe harbor (WCSH) period. There were very differing opinions about whether the 5% NQFP limit was turned off during the WCSH period. If it was, then during the 31- to 62-month period, the QOZB might be able to invest 100% of its funds into crypto for the duration of the WCSH period.
Thankfully, the IRS issued a second set of correcting regulations in August (T.D. 9889), which provided additional clarification, including how certain tests and limitations would effectively be "turned off" during the WCSH period. The IRS made clear that in the case of a "start-up" entity, during the 31- to 62-month WCSH period, the 10% NQFP limitation for QOZB entities would not apply and such property will be treated as working capital of the QOZB. Unfortunately, neither the Code nor the regulations include a definition of a startup business, but a commonsense conclusion is that a startup business will cover the majority of OZ businesses other than a business that was acquired by a QOF or QOZB. These clarifying regulations provide some added investment flexibility for crypto-focused OZ investors.
Just remember that investing in crypto assets (or other NQFP) long term via a QOF/QOZB structure is limited to a combined maximum 15% at the QOF (10%) and QOZB levels (5%). Additional amounts may be investable at the QOZB level during the WCSH period, but I expect further guidance from the IRS soon.
The Land of OZ may well be the next frontier for crypto investors and others generating short-term gains in the market. The OZ program may prove to be the ultimate tax tool for maximizing the after-tax economic return on these crypto asset gains. Also remind your clients that OZ investing takes patience and confidence. Further, many are waiting to see if underserved businesses and residents in OZ-designated tracts will benefit to the extent that real estate investors do. But for those who choose well, deferring real gains from crypto asset trading can provide substantial benefits to both the investor and to the underserved communities that see redevelopment and new growth because of that capital infusion.
A taxpayer, who was required under a 2014 settlement agreement incident to divorce proceedings to pay health insurance premiums for his wife during the period before their divorce was final, was allowed to exclude the premiums (which were paid by his employer through a cafeteria plan) from gross income and also take an alimony deduction for the amount of the premiums paid.
Background
In 2012, Charles Leyh, filed for divorce from his then wife, Cynthia. The couple filed and signed an agreement in 2014 incident to their divorce proceeding in which Charles agreed to pay Cynthia alimony pendente lite until the final divorce decree was granted. As part of the 2014 agreement, Charles agreed to pay for Cynthia's health and vision insurance in 2015, and during 2015 he paid $10,683 for Cynthia's health insurance premiums pretax through his employer's "cafeteria plan."
On his 2015 Form 1040, U.S. Individual Income Tax Return, he excluded from his gross income the total amount of health insurance premiums paid through his employer's cafeteria plan. Because he was required under the 2014 agreement to provide health insurance to Cynthia prior to a final divorce decree being granted, he also claimed an alimony deduction for the amount of the premiums his employer paid for Cynthia's health insurance.
On examining Charles's return, the IRS took exception to the alimony deduction for the health insurance premiums paid, finding that it constituted an impermissible double deduction because Charles also excluded the health care premiums from gross income. The IRS therefore issued a notice of deficiency disallowing Charles's deduction for the alimony payments and imposed an accuracy-related penalty. Charles filed a petition in Tax Court challenging the IRS's determination.
The Tax Court's decision
The Tax Court held that Charles could take an alimony deduction for the amount of the health insurance premiums paid for Cynthia through his employer's cafeteria plan before he and she were granted a final divorce decree. Due to nature of the alimony deduction under Sec. 215, the court concluded that taking the deduction did not give rise to an impermissible multiple-deduction scenario.
If a taxpayer pays alimony under Sec. 71(b) pursuant to a divorce or separation agreement executed or modified before 2019, under Sec. 215 the taxpayer may take a deduction for the alimony paid if it is includible in gross income of the alimony recipient under Sec. 71. However, as the Tax Court noted, the Sec. 215 alimony deduction differs from most other personal deductions in that it is a method of designating which taxpayer must include an amount in income, instead of being a tax allowance for an expenditure. In the case of an alimony deduction, the tax consequences of the payer and the alimony recipient are taken into account in determining whether the payer is eligible for the deduction. The Tax Court stated that this point was crucial because, under the facts in Charles's case, only by comparing the overall net tax effect on both the alimony payer and the recipient before a pending divorce could it be shown that the double-deduction scenario claimed by the IRS did not exist.
As a married couple with a final divorce decree pending under state law, the Tax Court explained, Charles and Cynthia could have file married filing jointly for 2015 and avoided the alimony regime. If they had, the couple would have excluded health insurance coverage premiums from gross income, taken no alimony deduction for the premiums paid, and had no alimony income inclusion for them. However, they instead filed married filing separately and treated the health insurance coverage premiums as alimony. But for the alimony regime, Cynthia would not have been required to include any portion of the alimony payments in her gross income, so the Tax Court reasoned that, per the general matching design of the alimony regime, if Cynthia was required to include the alimony payments in her income, then Charles "should be permitted a corresponding deduction for those payments to preserve this equilibrium. In other words, [Charles's] alimony deduction should be properly viewed as being matched against [Cynthia's] alimony income, not against his excluded wage income."
The IRS also argued that if Charles were allowed to take an alimony deduction, he would receive a windfall in the form of multiple deductions for the same economic outlay. The court, however, stated that it had previously determined that the intended purpose of the general alimony regime was to shift the income tax burden of alimony to the recipient, and disallowing Charles's alimony deduction in this circumstance would instead leave him with a greater tax burden, which would be counter to this purpose.
The IRS further maintained that a statement from the Senate Finance Committee regarding the alimony deduction supported its position. In that statement, the committee described the creation of the alimony deduction as an attempt by Congress to relieve a payer-spouse from the tax burden of whatever part of an alimony payment was "includible in . . . [the payer's] gross income" (S. Rep't No. 77-1631 at 83 (1942), 1942-2 C.B. 504, 568). The Tax Court did not agree, finding it could not read this statement from the legislative history as overriding the plain text of Secs. 62, 215, and 71 by interpreting it to impose a precondition not present in those statutes.
The Tax Court, in addition, pointed out that the IRS had failed to cite any case in which an alimony deduction had been disallowed on the basis of the common law double-deduction principle. The court stated that the application of this doctrine has been limited to instances in which a taxpayer has attempted to claim the practical equivalent of multiple deductions for the same expense but where Congress did not specifically intend such a result. However, under Charles's circumstances, the court found that he undisputedly was entitled to both the exclusion from income for the health insurance premiums paid by his employer and the alimony deduction. Thus, the court concluded that "[b]y asking us to disallow the alimony deduction where the Code plainly permits petitioner this right, [the IRS] attempts to disrupt the uniformity of the general alimony regime to the net advantage of the [IRS] under the guise of the double deduction rules when no such threat is present."
Finally, the IRS argued that Sec. 265(a) generally provides that an amount may not be deducted if it is allocable to wholly tax-exempt income (other than interest). The regulations define tax-exempt income for this purpose as any class of income wholly excluded from gross income under Subtitle A of the Code or under any other provision of law.
The Tax Court, citing Manocchio, 78 T.C. 989 (1982), explained that the cases where it had held that Sec. 265(a)(1) applied generally shared the same basic concern: But for the application of Sec. 265, a taxpayer would have recognized a double tax benefit where one was not otherwise available to him. Because the chance for a double deduction did not exist for Charles given the special nature of the alimony regime, and the alimony payments were not allocable to tax-exempt income since Cynthia was required to include them in her income, the court declined to apply Sec. 265 to disallow Charles's alimony deduction for the health insurance premiums he paid on her behalf.
Reflections
The law known as the Tax Cuts and Jobs Act, P.L. 115-97, changed the alimony regime, effective for alimony agreements executed after Dec. 1, 2018, so that now the payer-spouse does not receive a deduction and the recipient-spouse does not include the alimony in income. Presumably, under the new regime and the Tax Court's reasoning, Cynthia would not be required to include in her gross income as alimony the health insurance premiums paid on her behalf and Charles would be allowed to exclude those premium payments from income but would not be able to take an alimony deduction for them.
The Senate Finance Committee released its portion of the Build Back Better Act on Saturday containing tax provisions and other updated legislative text.
In an announcement, committee Chair Sen. Ron Wyden, D-Ore., said the committee had made "targeted improvements" in the 1,180-page portion of the act, which was passed in its entirety by the House on Nov. 19 (H.R. 5376; see prior coverage of its tax and other provisions).
Senate committees of Commerce, Small Business, Banking and Housing, and Veterans Affairs also are among committees that have released their portions of the Senate version of the Build Back Better Act, Senate Majority Leader Chuck Schumer, D-N.Y., said last week.
Besides revenue, the Senate Finance Committee's title (Title XII of the bill) includes provisions on nontax matters including paid leave, health care, the environment, higher education, and trade.
Wyden said his committee modified the House's text of the bill with technical and policy changes plus changes to comply with Senate budget rules. The chamber's parliamentarian has yet to weigh in on rules compliance.
No SALT change — yet
One thing that is not in the Senate version is any change in the current (through 2025) cap on itemized deductions of state and local taxes under Sec. 164(b). The House version would increase the current $10,000 limit to $80,000 ($40,000 for married taxpayers filing separately and trusts and estates).
Changes may be made on the Senate floor later, including by an amendment adding a SALT provision (which was also added by amendment in the House).
Corporate minimum tax
Like the House version, the Senate text includes a 15% minimum tax on profits of large corporations. Corporations (other than S corporations, regulated investment companies, or real estate investment trusts) with more than $1 billion in average annual adjusted financial statement income for the three-tax-year period ending with the tax year would be liable for a tax of 15% of adjusted financial statement income for the tax year (over the corporate adjusted minimum tax foreign tax credit for the tax year). The provision has drawn criticism from groups including the AICPA, which asked that it not be included in the bill as overly complex and, because of differences between financial and taxable income, prone to causing distortions of both concepts.
Child tax credit
Also like the House version, the Senate text extends the 2021 expansion of the child tax credit through 2022 and also extends advance payments of the credit monthly through 2022. It also would extend the greater refundability of the credit beyond 2022.
Earned income tax credit
The Senate text, like the House bill, includes an extension of the 2021 changes to the earned income tax credit through 2022. The increase in the earned income and phaseout amounts would be indexed for inflation in 2022.
High-income taxpayers
Like the House version, the Senate bill would impose an income threshold that curtails some tax benefits and imposes new tax liabilities on income above those amounts.
Small business stock: The legislation also would modify Sec. 1202, which provides a gain exclusion for stock of qualified small businesses if held for more than five years, by disallowing 75% and 100% exclusions for taxpayers with adjusted gross income (AGI) over $400,000 or for trusts or estates.
Net investment income tax: The bill would expand the reach of the Sec. 1411 net investment income subject to a surtax of 3.8% of certain high-income taxpayers (taxable income over $400,000 for single filers and $500,000 for married couples filing jointly) to include income derived in the ordinary course of a trade or business.
Surcharge on high-income individuals, estates, and trusts: A new Code Sec. 1A would impose a tax on modified AGI over $10 million of 5% for individuals ($5 million for married taxpayers filing separately) and $200,000 for an estate or trust, plus 3% of modified AGI over $25 million for individuals ($12.5 million for married taxpayers filing separately) and $500,000 for an estate or trust.
International tax provisions
Several provisions would affect international business transactions and entity structures. They include modifications to Sec. 245A regarding the deduction for foreign-source portions of dividends, a limitation under Sec. 954(d) on foreign base company sales and services income, and a range of provisions concerning inbound transactions, such as modifications to the Sec. 59A base-erosion and anti-abuse (BEAT) tax.
Schumer stated on the Senate floor last week that he intends for the chamber to pass Build Back Better by Christmas. If the Senate version of the bill differs from the version passed by the House, it will then have to go back to the House for reconsideration.
The maximum amount of an individual's taxable earnings in 2022 subject to Social Security tax will be $147,000, the Social Security Administration (SSA) announced Wednesday.
An increase 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) pay an additional hospital insurance tax under Sec. 3103(b)(2) 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.
The SSA also announced on Wednesday a cost-of-living adjustment (COLA) based on an increase in the consumer price index from the third quarter of 2021, applicable to Social Security benefits payable in 2022, of 5.9%, compared with a COLA increase for 2021 of 1.3%.
The annual amount that retirees receiving Social Security benefits can earn in the year they reach full retirement age before their benefits are reduced (by $1 for every $3 in earnings over the limit) will be $51,960 for 2022, up from $50,520 in 2021.
Beneficiaries younger than full retirement age will be able to earn up to $19,560 in 2022 (an increase from $18,960 in 2021) before their benefits are reduced by $1 for every $2 in excess earnings.
The maximum Social Security benefit for a worker retiring at full retirement age will increase to $3,345 per month in 2022 from $3,148 per month in 2021.
