Each year the IRS makes inflation adjustments for several deductions, the tax rate schedules, and a host of other tax provisions. While Congress continues to debate several tax issues including estate and gift tax changes, the IRS moved forward with its annual inflation adjustments regardless. The inflation adjustments apply to tax year 2022 returns, which will be filed in 2023.
The IRS adjusted more than 60 tax provisions for inflation. Here are some of the key updates to keep in mind as you as you begin tax planning for the New Year and beyond.
The standard deduction rose $800 for married filing jointly to $25,900 for tax year 2022. Single taxpayers and married filing separately can take a $12,950 standard deduction if they choose not to itemize.
The top tax rate remained the same (37%), as did other marginal rates. The income levels to which they apply were adjusted for inflation. Here are the rates and brackets for tax year 2022:
- 37% for single taxpayers with incomes greater than $539,900 ($647,850 for married filing jointly)
- 35% for single taxpayers with incomes over $215,950 ($431,900 for married filing jointly)
- 32% for single taxpayers with incomes over $170,050 ($340,100 for married filing jointly)
- 24% for single taxpayers with incomes over $89,075 ($178,150 for married filing jointly)
- 22% for single taxpayers with incomes over $41,775 ($83,550 for married filing jointly)
- 12% for single taxpayers with incomes over $10,725 ($20,550 for married filing jointly)
- 10% for single taxpayers with incomes of $10,275 or less ($20,550 or less for married filing jointly).
Alternative Minimum Tax
The alternative minimum tax (AMT) exemption for tax year 2022 has risen $2,300 to $75,900 for individual taxpayers and by $3,500 to $118,100 for married couples filing jointly. The AMT begins to phase out at $539,900 for individual taxpayers and at $1,079,800 for those married and filing jointly.
Estate and Gift Tax
The Tax Cuts and Jobs Act of 2017 more than doubled the estate tax exclusion for wealthy individuals. Despite attempts in 2021, Congress has not yet been successful at bringing it back down. Until the House and Senate can agree on changes, exclusion amounts set in 2018 will continue to be adjusted for inflation.
For now, the estates of individual decedents who die during tax year 2022 will have a basic exclusion amount of $12,060,000. That’s up from $11,700,000 in 2021. The exclusion rose to $24,120,000 for estates of married couples for tax year 2022.
Exclusions for Gifts
The IRS also increased the annual gift tax exclusion for individuals for tax year 2022 to $16,000 from $15,000. The exclusion had not been increased since 2018. Individual taxpayers can gift up to $16,000 each to any number of recipients without having to pay a gift tax. The exclusion is per gifting individual rather than per recipient. This means each spouse in a married couple can gift up to $16,000 tax free resulting in a total tax-free gift exclusion per couple of $32,000 per recipient.
IRA and 401(k) Contributions
Limits on IRA contributions were one of the few things that were not adjusted for inflation for 2022. The maximum annual contribution limit for individuals under 50 years old remains at $6,000 and for those age 50 and over the maximum allowable contribution stays at $7,000.
Contribution maximums for 401(k)s were increased to $20,500 for individuals younger than 50 and $27,000 for individuals aged 50 and older. That’s an increase of $1,000 over 2021 limits.
Earned Income Credit
The maximum earned income tax credit (EITC) increased by $200 for taxpayers with three or more qualifying children to $6,935 in tax year 2022. For single taxpayers and married filing jointly with no children, the maximum EITC is $560 in 2022. The maximum 2022 EITC is $3,733 for one qualifying child and $6,164 for two qualifying children.
Have Questions? Call the Experience Tax Attorneys at Wiggam Law
While Wiggam Law does not prepare tax returns, we can help with other tax-related issues. If you find someone fraudulently used your Social Security number to obtain a stimulus payment or after calculating your taxes you find you cannot pay your tax debt and need to negotiate a payment plan, the experienced attorneys at Wiggam Law can evaluate your situation and recommend a course of action. Contact metro Atlanta’s top tax attorneys by clicking here or give us a call at (404) 233-9800.