2022 US tax year changes: Individual, estate and gift taxes
The annual tax filing season opened on Monday this week, and we are delighted to summarize some important changes to the 2022 US tax year when compared to prior years.
The most notable changes are:
- The first page of Form 1040 will look significantly different for the 2022 US tax year than prior years. There are additional lines which may not be relevant to you and some other amounts that in prior years were reported on Form 1040 are now reported on Schedule 1. Some of the changes to Form 1040 are:
- Line 1 is expanded and there are new lines 1a through 1z. All wages reported on Form W-2
- will be on Line 1a. All other types of earned income and taxable employer-provided benefits will be reported on lines 1b through 1h.
- Pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is now reported on Schedule 1, line 8t.
- During the pandemic, the IRS allowed taxpayers who claim the standard deduction, up to an additional $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction on their tax return will not have an option to take an above-the-line deduction for charitable donations.
- For 2022, the standard deduction amount has been increased for all filing statuses. The amounts are:
- Single or Married filing separately – $12,950 (up from $12,550 for 2021)
- Married filing jointly or Qualifying surviving spouse – $25,900 (up from $25,100 for 2021)
- Head of household – $19,400 (up from $18,800 for 2021)
- The 2022 foreign-earned income exclusion amount is $112,000 (up from $108,700 for tax year 2021).
- Reduced tax credits – The IRS have reduced the child tax credit and the child and dependent care tax credit for the 2022 tax year.
- In 2021, the child tax credit offered up to $3,600 per child under age 6, and up to $3,000 per child ages 6 through 17. However, for 2022, the tax breaks are back to the previous amount – up to $2,000 per child under the age of 17.
- In 2021, the child and dependent care tax credit jumped up to $8,000 for one qualifying person or $16,000 for two or more qualifying persons. However, for 2022, the credit amount returns to $3,000 for one qualifying person and $6,000 for two or more qualifying persons.
- The annual gift exclusion for 2022 is $16,000 (increased from $15,000 in 2021). This means that a US person could gift up to $16,000 to each donee during the calendar year 2022. The gift must be of a “present interest” i.e. no deferred gifts; generally, gifts in trust are not allowed.
For gifts made to spouses who are not US citizens, the annual exclusion has increased to $164,000 (increased from $159,000 in 2021).
For 2023 planning purposes, the annual gift tax exclusion is $17,000 per donee and for the gifts made to spouses who are not US citizens, the annual exclusion is $175,000.
In addition to the above annual exclusions, the lifetime exclusion amount applicable for gift tax and estate tax for 2022 is $12,060,000 and for 2023 is $12,920,000.
Key point – On November 26, 2019, the IRS clarified that individuals taking advantage of the increased gift tax exclusion amount (the basic exclusion amount) in effect from 2018 to 2025 due to the Tax Cuts and Jobs Act, will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.
If you have any questions or planning to make significant gifts, please contact us to understand the tax implications.