IRS Announces 2022 Tax Inflation Adjustments

Each year the IRS makes adjustments to more than 60 tax provisions. This includes the tax rate schedules and other changesi. The current gyrations in Congress over taxes could result in these changing again and likely the addition of many others. There is no reliable substitution for qualified tax advisory services, so check in well before the end of the year. You may need to make changes that can impact this tax year and the next as well. These changes will generally apply to tax returns filed in 2023 for the 2022 tax year. Here are the highlights:

  • Standard deduction – For married couples filing jointly, the standard deduction will rise by $800 to $25,900. For single taxpayers or married couples filing separate returns, the deduction rises by $400 to $12,950. For heads of household, the deduction is up by $600 to $19,400.
  • Personal exemption – Remains zero as it was in 2021.
  • Marginal rates for 2022:
    • 37% for incomes over $539,900 ($647,850 for married couples filing jointly).
    • 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).
  • Alternative Minimum Tax Exemption – The exemption amount is $75,900 and begins to phase out at $539,900 ($118,000 for married couples filing jointly phasing out beginning at $1,079,800).
  • Health spending arrangement contributions – The dollar limitation for employee salary reductions for contributions to a health spending arrangement account increases to $2,850. With cafeteria plans that allow carryover, the allowed carryover if unused is $570.
  • Medical savings account – Participants with self-only coverage in a medical savings account, the plan must have an annual deductible of at least $2,450 and not more than $3,700. The maximum out of pocket expense for self-only coverage is $4,950. For family coverage, the annual deductible is not less than $4,950 and not more than $7,400. For family coverage, the maximum out of pocket expense is $9,050.
  • Foreign income exclusion – The foreign income exclusion is $112,000 for 2022.
  • Decedent’s exclusion – For decedents who die in 2022, the basic exclusion amount is up from $11,700,000 to $12,060,000.
  • Gifts exclusion – The annual exclusion for gifts is increased from $15,000 to $16,000.

These are some highlights of more than 60 changes in the tax codes for tax year 2022. This is not legal or accounting advice, and you are strongly encouraged to meet with tax advisors to discuss coming tax changes and possible actions you can take to minimize taxes going forward. The meeting should take place before the end of the year in case changes in your business should be made in this tax year to minimize taxes.

i IRS Tax Rate Changes for 2022 – IRS.gov

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