IRS Announces 2022 Inflation Adjustments

Earlier this week the Internal Revenue Service issued Revenue Procedure 2021-45 which outlines the 2022 IRS Tax Inflation Adjustments. This Revenue Procedure adjusts more than 60 tax provisions, including the tax rate schedules and other tax changes.

These adjustments apply to the 2022 taxation year and will affect returns filed in 2023. The following are a few of the important changes.

Individual Tax Rates:

For tax year 2022, the tax rates remain the same, however, the new tax brackets will be increased as follows:

RateSingle and Married Filing SeparateMarried Individuals Filing Joint Returns
and Qualified Widow(er)
Heads of Households
10%$0 to $10,275$0 to $20,550$0 to $14,650
12%$10,276 to $41.775$20,551 to $83,550$14,651 to $55,900
22%$41,776 to $89,075$83,551 to $178,150$55,901 to $89,050
24%$89,076 to $170,050$178,151 to $340,100$89,051 to $170,050
32%$170,051 to $215,950$340,101 to $431,900$170,051 to $215,950
35%$215,951 to $323,925$431,901 to $647,850$215,951 to $539,900
37%$323,926 or more$647,851 or more$539,901 or more

For the tax year 2022, the Alternative Minimum Tax exemption will increase to $75,900 and begins to phase out at $539,900. For taxpayers filing a joint return the exemption will be $118,100 and the phase out begins at $1,079,800.

Deductions:

The standard deduction for married couples filing jointly for tax year 2022 increased by $800 to $25,900. For single taxpayers and married individuals filing separately, the standard deduction rose $400 to $12,950 for 2022, and for heads of households, the standard deduction will be $19,400 for tax year 2022, up $600.

There is no limit on itemized deductions, as the limitation was eliminated by the Tax Cuts and Jobs Act in 2018.

Credits:

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 for tax year 2021. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.

Number of qualifying childrenEarned Income Level for Maximum CreditMaximum CreditBeginning Phase-out for Married Filing JointlyComplete Phase-out for Married Filing JointlyBeginning Phase-out for all othersComplete Phase-out for all others
None$7,320$560$15,290$22,610$9,160$16,480
One$10,980$3,733$26,260$49,622$20,130$43,492
Two$15,410$6,164$26,260$55,529$20,130$49,399
Three or More$15,410$6,935$26,260$59,187$20,130$53,057

The modified adjusted gross income amount used by joint filers to determine the reduction for both the American Opportunity Tax Credit and the Lifetime Learning Credit is not adjusted for inflation for taxable years beginning after December 31, 2020.  These credits are phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

The expanded benefits of the Child Tax Credit are only available for 2021. Unless extended, the rules for 2022 will revert back to those in place for 2020. That is, the non-refundable credit would be up to $2,000 per child and the refundable credit would be limited to $1,500.

Other changes:

For tax year 2022, the foreign earned income exclusion is increased from $108,700 for tax year 2021 to $112,000.

The basic exclusion amount for estate tax of decedents who die during 2022 will be $12,060,000, up from a total of $11,700,000 for estates of decedents who died in 2021.

The annual exclusion for gifts increases by $1,000 to $16,000 for calendar year 2022.

Each year the IRS publishes the inflation adjustments that will take effect in the next calendar year. For more information on the 2022 IRS inflation adjustments, please see Revenue Procedure 2021-45.

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