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It’s about that time of year again when you start digging out old receipts and learn how to use Excel. Yes, it is tax season. No one likes surprises when it comes to tax returns or tax refunds. But, this year you may get something. The historic inflation for 2022 made some changes to the exemptions, deductions, and limits in several categories.
Money has no value in 2021, and the government is recognizing this through some significant adjustments. Here’s a look at the big changes you can expect when you file for the 2022 tax season.
tax brackets have shifted
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For the 2022 tax year, the tax brackets have shifted slightly. The actual percentage that is paid is not changing, however, as is the qualifying income for each. You can view a full breakdown of the new qualifying income for each tax bracket IRS.gov. Rates range from several hundred dollars on the lower end to as much as $16,000 for the highest bracket.
This is good news for those individuals who did not see a substantial salary increase in 2022. Due to inflation, you may find yourself in a lower tax bracket, or at least not in a higher one.
standard deduction increases
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Here’s another inflation-friendly change: The standard deduction has changed across the board.
For married couples filing jointly, the standard deduction has increased by $900, and is now up to $25,900.
For singles or married individuals filing separately, the standard deduction has increased by $400 and is now up to $12,950.
The itemized household standard deduction has increased by $600 and is now up to $19,400.
the wealthy can deduct a little more
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There has been a slight increase in the Alternative Minimum Tax (AMT) exemption. For those unfamiliar with the AMT, it is a system that prevents the ultra-wealthy from avoiding paying their fair share of taxes. You can learn more about the wide-ranging effects of AMT at Investopedia. But simply put, it puts some cap on how much the ultra-wealthy can deduct from their taxes. The IRS is going a little lighter on this for 2022.
The alternative minimum tax (AMT) exemption has increased slightly from $73,600 to $75,900 for individuals, $59,050 for married couples filing separately, and $118,100 for married couples filing jointly.
a short break on commuting expenses
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If you previously took advantage of the qualifying change and parking fringe benefits, you may be able to use slightly more for 2022. The changes allow fringe benefit employees or employers to use pre-tax dollars to pay for qualified expenses such as commuting to work or parking. More specifically, it allows employers or employees to withhold pre-tax dollars from their paychecks to cover these expenses.
The monthly limit for this benefit was $270 for 2021 and up to $280 for 2022. That’s $280 for commuting costs and parking costs, respectively.
Changes to Individual Health Savings Accounts
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Taxpayers who pay for some or all of their health care will see some changes for the year 2022. For starters, the employee wage deduction limit for contributions to the Flex Health Savings Account has increased from $2,750 to $2,850.
The minimum deductible for self-only medical coverage has increased by $50 through 2021, and is now $2,450 for individuals. Meanwhile, the new maximum deductible for individuals is $3,700, up $100 from 2022. For families, the new minimum deductible is $4,950 and the new maximum is $7,400.
There is also an out-of-pocket maximum, now $4,950 for individuals and $9,050 for families.
Give more gifts, tax-free
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If you were hoping to gift money to your spouse or family member, here’s some good news: The new gift exclusion amount has increased from $15,000 to $16,000.
Multiple adoption expenses covered
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Finally, adoptive parents can expect a bit more government support. In 2021, up to $14,440 of adoption-related expenses are deductible. For 2022, this figure rises to $14,890.
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