After President Joe Biden signed into law the Bipartisan Infrastructure Investment and Jobs Act (Act) this month, a host of tax changes were implemented that affect employers and individuals. And while there’s plenty to unpack from that bill (and we plan to do that over time), we’ve consolidated some of that below with two key considerations on the Employee Retention Tax Credit and digital currencies.

We’ve also included some insight into changes for 2022 tax rates based on inflation adjustments.

Read on for more and as always contact a Perlson LLP professional at 516-541-0022 with any questions you may have:

Employee Retention Tax Credit

The Act signed into law by President Biden terminates the Employee Retention Tax Credit (ERTC) as of the end of the third quarter of 2021.

As a point of reference, the ERTC was implemented under the CARES Act in Congress’ attempt to boost the economy at the height of the COVID-19 pandemic. It paved the way for employers to receive tax credits by keeping their employees and was designed to keep the credit in place through December 31, 2021.

However, the Act has ended the credit as of September 30, 2021. The only exception refers to a “recovery startup business” that may be able to take advantage of the credit through the fourth quarter. Those businesses qualify if and only if they have employees and started their operation after February 15, 2020. Additionally, the recovery startup business may only have average annual gross receipts of $1 million for the three prior taxable years.

Digital Currency Reporting

As the world continues to invest heavily in cryptocurrencies, the Act has expanded reporting for brokers who offer investors the opportunity to invest in digital assets.

Under the new rules, the Act creates a new definition for a “broker” of digital assets to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” The move means many more digital currency exchanges will be subject to reporting guidelines. Previously, brokers were largely limited to organizations and companies that operated exchanges for digital assets.

Additionally, the Act offers additional guidance on what constitutes a “digital asset” by defining it as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary [of the Treasury].”

Under previous laws, brokers were required to report to the IRS and their users annual information on the digital assets customers sold, the dates of the transactions, the proceeds of the sales, and the type of digital assets sold. That information, which was included in a 1099-B form, allowed the IRS and investors to determine their capital gains tax.

By expanding the definition of brokers and digital assets, the Act will likely have a profound impact on the amount of reporting around cryptocurrency going forward. However, the Act’s reporting will take effect on assets purchases after January 1, 2023 and on returns filed after December 31, 2023. 

Brokers, in other words, have a couple of years to prepare for the new reporting guidelines. Existing brokers who are already subject to reporting must continue those activities.

2022 Inflation Adjustments

Also of note, on November 10, the IRS announced its annual inflation adjustments for tax year 2022. 

Here’s a brief rundown of the changes:

  • The standard deduction for married couples filing jointly for tax year 2022 increases to $25,900 up $800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction will increase to $12,950 for 2022.
  • Marginal Rates: For tax year 2022, the top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).
  • The other rates are:
    35%, for incomes over $215,950 ($431,900 for married couples filing jointly);
    32% for incomes over $170,050 ($340,100 for married couples filing jointly);
    24% for incomes over $89,075 ($178,150 for married couples filing jointly);
    22% for incomes over $41,775 ($83,550 for married couples filing jointly);
    12% for incomes over $10,275 ($20,550 for married couples filing jointly).
    The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).
  • There is no limitation on itemized deductions.
  • The Alternative Minimum Tax exemption amount for tax year 2022 is $75,900 and begins to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption begins to phase out at $1,079,800).
  • The tax year 2022 maximum Earned Income Tax Credit amount is $6,935 for qualifying taxpayers who have three or more qualifying children, up from $6,728 last year.

Traditional IRA income phase-out ranges are as follows:

  • $68,000 to $78,000 for Single taxpayers covered by a workplace retirement plan.
  • $109,000 to $129,000 for 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 for taxpayers not covered by workplace retirement plans and married to someone who is covered by such a plan.
  • $0 to $10,000 for Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan.

Roth IRA income phase-out ranges are as follows:

  • $129,000 to $144,000 for Single taxpayers and heads of household
  • $204,000 to $214,000 for Married, filing jointly
  • $0 to $10,000 for Married, filing separately
  • SEP contributions are limited to $61,000 in 2022, up from $58,000 in 2021. The IRS has also increased the compensation limit from $290,000 in 2021 to $305,000 in 2022.

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