Welcome to the topic IRS Tax Inflation Adjustments for Tax Year 2022.
In October, the consumer price index increased by 6.2 percent over the past year, the largest increase in more than thirty years.
As the cost-of-living rises, the IRS has increased the income criteria for each tax band, which will take effect in the tax year 2022 for returns filed in 2023.
The International Revenue Service (IRS) issued the annual inflation adjustments for 2022 for over 60 tax provisions on November 10, 2021.
The IRS has published all needed material on IRS.gov, including tax rate schedules and other tax adjustments, but we’ve highlighted some of the most significant changes for 2022.
What Is Inflation
Inflation is the gradual loss of a currency’s buying value over time. The rise in the average price level of a basket of selected goods and services in an economy over time can be used to calculate a numerical approximation of the rate at which buying power declines.
A rise in the general price level, which is frequently stated as a percentage, signifies that a unit of currency now buys less than it did previously.
Inflation is distinguished from deflation, which happens when money’s purchasing power rises but prices fall.
Inflation is a term used to describe the overall impact of price changes across a wide range of goods and services. It provides for a single value depiction of the rise in the price level of goods and services in an economy over time.
The fluctuation in the price of a market basket of goods and services used by a household is measured by the Consumer Price Index.
Inflation Adjustments
For the tax year 2022, the standard deduction for married couples filing jointly climbs to $25,900, up $800 from the previous year.
The standard deduction for single taxpayers and married persons filing separately will increase by $400 to $12,950 in 2022, and the standard deduction for heads of households will increase by $600 to $19,400 in 2022.
The personal exemption will continue to stay at zero for the tax year 2022, like that for tax year 2021. The personal exemption was eliminated as part of the Tax Cuts and Jobs Act.
The monthly limit for the qualifying travel fringe benefit and the monthly limit for eligible parking will both increase to $280 in the tax year 2022.
The cash ceiling for employee salary reductions for payments to health flexible expenditure arrangements rises to $2,850 for taxable years starting in 2022.
The maximum rollover value for cafeteria plans that allow unused sums to be carried over is $570, up $20 from taxable years starting in 2021.
Additional Changes
Itemized deductions are not limited in 2022, as they were in 2021, 2020, 2019, or 2018. This limitation was removed by the Tax Cuts and Jobs Act.
For the tax year 2022, the Alternative Minimum Tax exemption level is $75,900, with the exemption phasing out at $539,900 ($118,100 for married couples filing jointly, with the exemption phasing out at $1,079,800).
The exemption value for 2021 was $73,600, with a phase-out starting at $523,600 ($114,600 for married couples filing jointly, with a phase-out starting at $1,047,200).
The maximum Earned Income Tax Credit value for eligible taxpayers with three or more eligible children is $6,935 in the tax year 2022, up from $6,728 in the tax year 2021.
A figure in the revenue procedure lists the highest EITC amount for additional categories, as well as income limits and phase-outs.
Marginal Rates
Individual single taxpayers with incomes exceeding $539,900, or $647,850 for married couples filing jointly, will continue to pay a 37 percent top tax rate in 2022.
The following rates are now applicable:
Thirty-five percent for incomes over $215,950, or $431,900 for the married couples that are filing jointly.
Thirty-two percent for incomes over $170,050, or $340,100 for the married couples filing jointly.
Twenty-four percent for incomes over $89,075, or $178,150 for married couples that are filing jointly.
Twenty-two percent for incomes over $41,775, or $83,550 for the married couples who are filing jointly.
And 12 percent for incomes over $10,275, with $20,550 for those married couples who are filing jointly.
For singles with incomes of $10,275 or less, with $20,550 for married couples filing jointly, the lowest rate is 10%.
Medical Savings Account
Individuals with self-only coverage in a Medical Savings Account in the tax year 2022 must have an annual deductible of no less than $2,450, up $50 from the tax year 2021, and no more than $3,700, up $100 from the tax year 2021.
The highest out-of-pocket price for self-only coverage is $4,950, up $150 from 2021. The annual deductible for family coverage in 2022 must not be less than $4,950, up from $4,800 in 2021; nonetheless, it can’t be greater than $7,400, up $250 from the limit in 2021.
For the tax year 2022, the out-of-pocket spending maximum for family coverage is $9,050, up $300 from the tax year 2021.
Further Highlights
For taxable years starting after December 31, 2020, the modified adjusted gross income amount used among joint filers to compute the reduction in the Lifetime Learning Credit given in 25A(d)(2) is not adjusted for inflation.
For individuals with a modified adjusted gross income of more than $80,000, which is $160,000 for joint returns, the Lifetime Learning Credit is phased out.
The foreign earned income exclusion for the tax year 2022 is $112,000, increased from $108,700 for tax year 2021.
The basic exclusion threshold for estates of decedents who passed in 2022 is $12,060,000, increased from $11,700,000 for estates of decedents who kicked the bucket in 2021.
For the calendar year 2022, the yearly exclusion for gifts rises to $16,000, rising from $15,000 in calendar year 2021.
The amount of qualifying adoption expenditures up to $14,890 is the maximum credit permitted for the tax year 2022, increased from $14,440 in 2021.
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