IRS releases new tax rates and adjustments for tax year 2022

On November 10, the Internal Revenue Service (IRS) released the annual inflation adjustments which are to be used by individual taxpayers on 2022 tax returns, with over 60 tax provisions updated.

Standard Deduction

• Of interest to most taxpayers, will be the standard deduction for married couples filing jointly for the tax year 2022, which has risen to $25,900 which is an increase of $800 from 2021.
• Single taxpayers and those who are married but filing separately, the standard deduction rises from $12,550 to $12,950, an increase of $400.
• For heads of households, the standard deduction will be $19,400, an increase of $600 on the year before.
• The personal exemption for tax year 2022 remains at 0, as it was for 2021, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act. 

Tax rates for Individual Taxpayers in 2022

• The top income tax rate will be 37% for individual single and head of household taxpayers with incomes greater than $539,900 and $647,850 for married couples filing jointly.
• The other income tax 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 will be 10% for single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).

Gift and estate exclusions

• Estates of decedents who die during 2022 have a basic exclusion amount of $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 to $16,000 for calendar year 2022, up from $15,000 for calendar year 2021.

Health and Medical

• For tax year 2022, for participants who have self-only coverage in a Medical Savings Account, to qualify as a “high-deductible health plan” the plan must have an annual deductible that is not less than $2,450 (up $50 from tax year 2021); but not more than $3,700, (up $100 from tax year 2021). For self-only coverage, the maximum out-of-pocket expense amount is $4,950, up $150 from 2021.

• For tax year 2022, for family coverage, the annual deductible for a “high deductible health plan” must be not less than $4,950, up from $4,800 in 2021.  However, the deductible cannot be more than $7,400, up $250 from the limit for tax year 2021.  For family coverage, the out-of-pocket expense limit is $9,050 for tax year 2022, an increase of $300 from tax year 2021.

In addition

• The maximum credit allowed for adoptions for tax year 2022 is the amount of qualified adoption expenses up to $14,890, up from $14,440 for 2021.
   
• 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 2021 exemption amount was $73,600 and began to phase out at $523,600 ($114,600 for married couples filing jointly for whom the exemption began to phase out at $1,047,200).
   
• For tax year 2022, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $280.
   
• The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in Internal Revenue Code § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020.  The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
   
• For tax year 2022, the foreign earned income exclusion is $112,000 up from $108,700 for tax year 2021.

Form more information visit the IRS website here.

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Last updated: 8th July 2022