The IRS recently announced the 2022 tax changes. This annual inflation adjustment means new tax-rate schedules, tax tables, and cost-of-living adjustments for several tax breaks. Here’s a quick overview of the 2022 tax changes and how it will impact your financial planning.
Tax Changes for 2022
Most of these changes are higher than in previous years because of the high rates of inflation. If you don’t expect a significant life change or increased salary, you can use these new numbers to estimate your 2022 federal tax liability. However, if you are expecting changes, like a marriage or a pay raise, you need to speak to your financial adviser to review your tax withholding and make any necessary changes.
2022 Tax Bracket and Tax Rates
There are seven tax rates in 2022. These are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The taxable income for each will be determined by your filing status.
Standard Deduction Amounts
2022 tax changes also bring an increase in the standard deduction amounts. It will be $12,950 for individuals and married couples filing separately, $19,400 for heads of households, and $25,900 for a married couple filing jointly and surviving spouses. The additional standard deduction amount for the blind or aged is $1,400 ($1,750 for unmarried aged/blind taxpayers).
Personal Exemption Amount
2022 tax changes did not affect the personal exemption amount. It remains zero in 2022. The Tax Cuts and Jobs Act suspended the personal exemption through the tax year 2025. To balance the suspension, the Child Tax Credit for most taxpayers was enhanced, as well as doubling the standard deduction amount.
[Related: Charitable Deductions]
“Kiddie Tax”
The kiddie tax is a rule that a child’s unearned income is taxed at the parent’s marginal tax rate. This applies to unearned income for children under the age of 19 and college students under the age of 24. Unearned income is income from sources other than wages and salary, such as dividends and interest, inherited IRA distributions, and taxable scholarships.
2022 tax changes to the kiddie rule mean that the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of either $1,150 or the sum of $400 and the individual’s earned income (not to exceed the regular standard deduction amount).
If your child’s only income is unearned income, you might be able to elect to include that income on your tax return rather than file a separate return for your child. This is allowed if the child’s gross income is more than $1,150 but less than $11,500. However, the tax burden may be less if your child files a separate return.
Additional 2022 Tax Changes
Federal Estate Tax Exemption. By 2022, the federal estate tax exemption for descendants dying in 2022 will increase to $12.06 million per person or $24.12 million for a married couple.
Gift Tax Exclusion. Federal gift tax increased to $16,000 in 2022.
Financial Planning for 2022
The 2022 tax changes encompass much more, including changes to several popular tax credits and deductions. To fully understand how these changes will impact you, we recommend that you spe3ak to your financial advisor. To learn more, please contact Argent Bridge Advisors today.
