In November 2021, the Internal Revenue Service (IRS) announced new tax rate schedules, annual inflation adjustments for more than 60 tax provisions, and other key tax changes. The update to the Internal Revenue Code, 26 CFR 601.602: Tax Forms and instructions, includes all detailed changes in Revenue Procedure 2021-45.
These tax code changes are effective for tax year 2022, so taxpayers will see them reflected when they file starting in 2023.
Here’s a brief summary of the tax changes that will likely have an impact on many U.S. taxpayers.
Key Takeaways From Revenue Procedure 2021–45
1. Personal Exemption
The personal exemption for tax year 2022 remains at zero.1
2. Marginal Tax Rates
The following table includes marginal rates for individual single taxpayers and married couples filing jointly:1
|
Tax Rate |
Individual Single Taxpayers – Income is greater than: |
Married Filing Jointly – Income is greater than: |
|
37% |
$539,900 |
$647,850 |
|
35% |
$215,950 |
$431,900 |
|
32% |
$170,050 |
$340,100 |
|
24% |
$89,075 |
$178,150 |
|
22% |
$41,775 |
$83,550 |
|
12% |
$10,275 |
$20,550 |
|
10% |
$10,275 |
$20,550 |
3. Increased Standard Deductions
Standard deductions have been adjusted for inflation, resulting in the following increases:1
|
Taxpayers filing as… |
Will see their deduction increase by… |
For a 2022 standard deduction of... |
|
Married couples filing jointly |
$800 |
$25,900 |
|
Single/married filing separately |
$400 |
$12,950 |
|
Head of household |
$600 |
$19,400 |
4. Unlimited Itemized Deductions
As the Tax Cuts and Jobs Act of 2017 eliminated the limit on itemized deductions, there is still no limit on itemized deductions for tax year 2022.1
5. Earned Income Tax Credit
For qualifying taxpayers who have three or more qualifying children, the maximum Earned Income Tax Credit for tax year 2022 is $6,935, up from $6,728 for tax year 2021.1
6. Alternative Minimum Tax (AMT) Exemption
The AMT exemption amount for individual taxpayers is $75,900 for tax year 2022, and begins phasing out at $539,900. For married couples filing jointly the AMT exemption amount is $118,100, and it begins phasing out at $1,079,800.1
7. Child Tax Credit
Beginning with tax year 2022, the dollar amount that may be refundable is $1,500.2
8. Capital Gains Rates
The two following tables include Maximum Zero Rate Amounts and Maximum 15% Rate Amounts for U.S. taxpayers:
|
Maximum Zero Rate Amounts2 |
|
|
Joint return or surviving spouse |
$83,350 |
|
Married individual filing separately |
$41,675 |
|
Individual head of household |
$55,800 |
|
Individual (other than estate or trust) |
$41,675 |
|
Estate or trust |
$2,800 |
|
Maximum 15% Rate Amounts2 |
|
|
Joint return or surviving spouse |
$517,200 |
|
Married individual filing separately |
$258,600 |
|
Individual head of household |
$488,500 |
|
Individual (other than estate or trust) |
$459,750 |
|
Estate or trust |
$13,700 |
9. Annual Gift Exclusion
For tax year 2022, the annual exclusion for gifts rises from $15,000 to $16,000.1
10. Estate Tax Exclusion
The basic exclusion for estates of decedents who die during 2022 is $12,060,000. That’s up from $11,700,000 in 2021.1
11. Health FSA Salary Reductions
For taxable years starting in 2022, the limit for employee salary reductions for contributions to health flexible spending arrangements increases to $2,850.1
The maximum carryover amount for cafeteria plans that permit the carryover of unused funds is $570, an increase of $20 over 2021.1
Inflation Increases Cost of Living
The adjustments to tax brackets, deductions, exemptions and exclusions are intended to account for rising inflation, which reached 6.2% in October 2021.3
The Social Security Administration also announced a substantial Cost-of-Living Adjustment (COLA), which will increase Social Security and Supplemental Security Income (SSI) benefits by 5.9% in 2022.4 Get the details you need when you download our Retirement and Financial Tax Summary 2022. Just click the link below to get your copy.
